July Employment Situation Outperforms Expectations Again


The BLS Employment Situation for July 2017 came out earlier this week, and showed another banner month in terms of employment growth. The total nonfarm payroll employment again increased by more than 200,000, hitting in at 209k added jobs. The unemployment rate ticked down by a tenth of a percentage point to 4.3%, probably because of some type of rounding measurement.  Major working groups, long term unemployed, the labor force participation rate and the employment-population rate all remained relatively unchanged, although the employment-population rate has gone up by 4 tenths of a point year-to-date. Similarly, involuntarily part-time workers, discouraged workers, and workers marginally attracted to the labor force all remained unchanged.

Food and drink services lead the way in July, at an added 53,000 jobs last month and an added 313,000 in 2017 this year. The average workweek remained unchanged at 34.5 hours, although average hourly earnings rose 9 cents in July, to $26.36. Year-to-date, we have seen the average earnings rise by 65 cents, or 2.5%, which many analysts still find sluggish considering how tight the labor market seems to be.

All-in-all, this report seems to once again be on the “high side of expectations”, with most economics thinking we would add only the average 180,000 jobs this month. The added numbers once again indicate we probably aren’t at full employment, which means our crazy-long economic expansion will continue. Also, this jobs report likely indicates the Fed will stay on track with their plans to raise interest rates again in December. Furthermore, the excellent employment situation and expected rate rise probably pushed the stock market higher, based on the fact that yields on 10-year Treasuries boded well in response to July’s report. To reiterate, all of this stays in line with the continued economic expansion, and show relative economic strength overall.

For the third straight month in my employment column, the biggest problem with the employment situation is, ironically, the strangely low unemployment. Job growth continues to outperform labor force growth, and gradually, this will push unemployment lower and lower, and perhaps below the Fed’s comfort level. Goldman Sachs economists actually foresee us way overshooting the labor market, and possibly see unemployment as low as 3.8% by the end of this year (especially if we continue to see added jobs exceedingly outperforming expectations). The 150,000 to 200,000 trend in added jobs is about twice the estimate of what the economy needs to maintain a healthy labor market. An overshoot of full employment in a very tight labor market has coincided with recessions in the past.

The good news: Goldman Sachs analysts also sees wages finally rising at a slightly higher rate, hopefully close to 3% by the end of the year. Both steadily higher inflation rates and wage acceleration have been absent numbers in our continued ridiculously long economic expansion.