July jobs report: "Trouncing expectations" but falling short of June

The US economy showed significant job growth in July, besting expectations in the marketplace, but still falling short of the mark set in June. The BLS reports that the US added 209,000 jobs last month, while the U-3 unemployment rate remained largely the same as it has been for the past few months:

Total nonfarm payroll employment increased by 209,000 in July, and the unemployment rate was little changed at 4.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in food services and drinking places, professional and business services, and health care.

Both the unemployment rate, at 4.3 percent, and the number of unemployed persons, at 7.0 million, changed little in July. After declining earlier in the year, the unemployment rate has shown little movement in recent months.

The initial estimate from June showed an addition of 222,000 jobs, which makes July a little less robust. The BLS revised that figure upward to 231,000, while revising May downward by 7,000 for a net gain in revisions of 2,000 over the past two months. The consensus expectation was 183,000, perhaps set in part by the second straight undershoot from ADP at 178,000 on Wednesday.

As set against expectations, it’s a good report. On its own, it’s substantial but not terribly impressive. The U-3 figures have plateaued more or less around 4.3% over the last few months, while the U-6 unemployment rate has been at 8.6% three of the last four months. That’s not too far above the level previous to the last recession in 2007, which is a good indication that the job market is healthier, but that has been a trend going back over the last couple of years, too.

The labor force participation rate remains stuck at 62.9%, although the employment-population ratio has shown a little more movement this year, rising 0.4%. On the plus side, the workforce expanded by 349,000, a good sign, while the number of people working part time for economic reasons declined by 172,000.

A look at job-creation numbers over the past two years shows 2017 lagging behind the less-than-spectacular growth levels of 2016:

So far, this year has been more consistent than the previous year, but lacks the amplitude of job growth seen in those figures. Recall too that few seemed satisfied with the results in 2016, too.

Media reports emphasized the win over expectations, but the AP also noted that wages have not responded to the growth seen over the last couple of months:

Growth in Americans’ paychecks, however, remains stubbornly slow. Average hourly pay rose by 2.5 percent from a year earlier, the same tepid annual pace as in June. That’s below the 3.5 percent to 4 percent that is typical when the unemployment rate is this low. …

Overall, hiring this year has averaged 184,000 a month, roughly in line with 2016′s average of 187,000.

Why are wages stagnating at this level of unemployment? The U-3 number depends on workforce participation, which has changed dramatically since the Great Recession. This shows that the U-3 number of today is no longer comparable to earlier rates in the historical series. It also suggests that despite the use of words like “robust” and “full employment,” the job market is not as healthy as assumed. There are still people who should be in the work force who aren’t, and that drag is holding down wage growth because of the impact that sidelined labor has on pricing.

Overall, this is a pretty good jobs report. We’d rather have 200K growth than 100K growth, of course, so it’s better than we’ve seen in May and March of this year.  However, we need to have sustained 300K growth over several months to get wages to rise organically. Right now we’re merely keeping pace with the status quo of the last year or two, which strongly suggests that employers don’t really see much indication of economic growth beyond the 2.5% range that has been the upper limit of the recovery from the Great Recession.