June 2017 Employment Situation: Healthy with a few sides of Economic Weak-points
June 2017 in America represents the 8-year anniversary of the rock bottom of the recession, where joblessness rates were twice what they are today. Nearly a decade ago, employers were dropping hundreds of thousands of laborers every month just to survive. 8 years removed, this June shows the labor market in a much brighter light, albeit not totally free of economic weaknesses.
The BLS’s Employment Situation estimates that the economy produced another 220,000 payrolls last month, as the unemployment rate ticked slightly up to 4.4% (which is still the lowest in decades.) Strong sectors include: Plus 37 thousand payrolls in healthcare, plus 23 thousand in Social Assistance, plus 29 thousand in the food industry, plus 17 thousand in Financial activities, and plus 8 thousand in Mining work. Employment fun fact of the month: Since an employment low in October of 2016, the Mining sector has added a total of 56 thousand jobs. Year-to-date average monthly job growth has been 180 thousand, “in line with the average monthly gain of 187,000 in 2016.” View the respective graph below:
Despite the healthy added payroll numbers, the labor sector showed miniscule changes in long term unemployed (unemployed for 27 weeks or longer), the labor force participation rate (62.8%), the employment-population ratio (60.1%), involuntarily part-time workers, and discouraged workers.
However, as The New York Times’ Patricia Cohen pointed out to me in an article earlier this week, wages continue to lack behind job growth in the economy. “Why isn’t the heightened job demand driving up wages? Year-to-date wage growth is a modest 2.5%, which is only slightly higher than inflation and possibly reflects a “weak pace of productivity in recent years”, which is what the Federal Reserve claims.
For most economic analysts, such as Michael Stull (senior vice president at the staffing company Manpower North America), the continued drops in unemployment, combined with low labor participation rates, leads us all to believe that something isn’t sitting right in the labor market. However, many analysts, including David Rosnick of the Center for Economic Policy and Research, believe that this indicates the economic expansion still has more room to run. I mentioned in my column last month that as the jobs added numbers continued their impressive growth, we may be coming into full employment (where everyone can get a job who wants one). However, if we were approaching full employment, the rate of added payrolls must have slowed by now, which it obviously hasn’t in June. It seems the labor market isn’t quite as stretched as we expected last month, as wages would be rising faster than inflation. The Fed’s move to raise benchmark interest rates not only reflect their confidence in the economy, but it can also aim to push against any inflation that might arise from a very tight labor market. However, the sluggish raise in wages and prices reflect that this may be a premature fear.
As we also saw in May, “[e]mployers continue to complain about how difficult it is to hire workers” (Source- New York Times). This indicates that low wage growth is being combined with a continually shrinking labor force, particularly in skilled laborers. Declining labor participation force is not a positive indicator, meaning that more people are dropping out of the labor force than returning. And, those who exit the job market for a while can lack the bargaining power and skills to re-enter in the future, meaning that these workers will probably re-enter for lower wages and possibly flextime schedules.
On the political side, much of the President’s pro-business agenda is held up in congress. Examples include: No GOP healthcare bill, no big tax overhaul, no infrastructure program, and no final government budget. The political uncertainty, coming off the tails of an economic boost since the election, could now be creating a certain amount of drag on the economy and labor market.
However, as the National Economic Council’s top director Gary Cohn points out in this interview with CNBC, the U-6 number, BLS’ broadest measure of unemployment is at its lowest level since 2007 (8.4%). This number includes involuntary part-time workers and discouraged workers. Increasing job numbers and decreasing unemployment numbers can only be good economic news