July Jobs Creation Falls Short Of Expectations, Wage Growth Remains Stagnant
Jobs growth fell short of expectations in July but was still relatively decent. Wage growth, however, remains stubbornly stagnant.
So far this year, the word governing the jobs market has been “inconsistent.” At the start of the year, in both January and February we saw numbers that, notwithstanding, the fact that most of the nation was undergoing a cold and harsh winter, were fairly strong, suggesting that this could be a good year for jobs growth after all notwithstanding the fact that we are rather late in the recovery from the Great Recession and nearing a point in the jobs market where we’ve typically seen equilibrium in the past. The following two months, though, March and April, turned disappointing as net jobs growth missed even modest target numbers by wide margin, The situation was slightly better in May, but the numbers for that month were about the same as what we saw for most of the final two years of the Obama Administration, numbers which are more consistent with a mature recovery reaching what economists refer to as “full employment.” The same was true for the report for June that was released last month, which was somewhat better than where expectations had been set.
More important than the jobs growth numbers and the unemployment rate, though, is the fact that wage growth, while positive, has remained as stubbornly stagnant as it was throughout most of 2017. This has been puzzling given the fact that the economic data suggested that a smaller available pool of labor should have led employers to increase wages to attract workers. In any case, heading into this morning, the expectations were that the jobs report for July would show roughly 190,000 new jobs created while wage growth would remain stuck around the 2.7% benchmark that we have seen since the start of 2017. Indeed, as I noted in my post about the December report, the jobs market seems to be at the point where expecting massive increases in job creation are probably out of the question. Instead, we’re likely to see modest but healthy jobs growth, but not anything spectacular.
The numbers for July, which showed a lower-than-expected 157,000 jobs created and the topline Unemployment Rate falling to 3.9%, seems to indicate that the previous conclusions about the market are correct and that 2018 is unlikely to stand out as a banner year when it comes to either jobs or wage growth:
Total nonfarm payroll employment rose by 157,000 in July, and the unemployment rate edged down to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, in manufacturing, and in health care and social assistance.
In July, the unemployment rate edged down by 0.1 percentage point to 3.9 percent, following an increase in June. The number of unemployed persons declined by 284,000 to 6.3 million in July. Both measures were down over the year, by 0.4 percentage point and 676,000, respectively. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (3.4 percent) and Whites (3.4 percent) declined in July. The jobless rates for adult women (3.7 percent), teenagers (13.1 percent), Blacks (6.6 percent), Asians (3.1 percent), and Hispanics (4.5 percent) showed little or no change over the month. (See tables A-1, A-2, and A-3.)
Among the unemployed, the number of reentrants to the labor force decreased by 287,000 in July to 1.8 million, following an increase in June. (Reentrants are persons who previously worked but were not in the labor force prior to beginning their job search.) (See table A-11.)
The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.4 million in July and accounted for 22.7 percent of the unemployed. (See table A-12.)
The labor force participation rate, at 62.9 percent in July, was unchanged over the month and over the year. The employment-population ratio, at 60.5 percent, was little changed in July but has increased by 0.3 percentage point over the year. (See table A-1.)
Total nonfarm payroll employment increased by 157,000 in July, compared with an average monthly gain of 203,000 over the prior 12 months. In July, job gains occurred in professional and business services, in manufacturing, and in health care and social assistance. (See table B-1.)
Employment in professional and business services increased by 51,000 in July and has risen by 518,000 over the year. Over the month, employment edged up in temporary help services (+28,000) and in computer systems design and related services (+8,000).
Manufacturing added 37,000 jobs in July, with most of the gain in the durable goods component. Employment rose in transportation equipment (+13,000), machinery (+6,000), and electronic instruments (+2,000). Over the past 12 months, manufacturing has added 327,000 jobs.
In July, employment in health care and social assistance rose by 34,000. Health care employment continued to trend up over the month (+17,000) and has increased by 286,000 over the year. Hospitals added 7,000 jobs over the month. Within social assistance, individual and family services added 16,000 jobs in July and 77,000 jobs over the year.
Employment in food services and drinking places continued to trend up over the month (+26,000). Over the year, the industry has added 203,000 jobs.
Construction employment continued to trend up in July (+19,000) and has increased by 308,000 over the year.
In July, employment in retail trade changed little (+7,000). Job gains occurred in general merchandise stores (+14,000), clothing and clothing accessories stores (+10,000), and food and beverage stores (+8,000). These employment gains were offset by a decline of 32,000 in sporting goods, hobby, book, and music stores, reflecting job losses in hobby, toy, and game stores.
Employment showed little or no change over the month in other major industries, including mining, wholesale trade, transportation and warehousing, information, financial activities, and government.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for May was revised upward from +244,000 to +268,000 and the number for June was revised upward from +213,000 to +248,000. This represents a net upward revision for the two months of +59,000 jobs. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +223,333 net jobs created per month, which is a somewhat positive increase from where the three-month average stood last month. So far in 2018, we’ve seen a total of 1,253,000 new jobs created in 2018 as a whole for an average of 179,000 net new jobs created since the start of the year, which is a somewhere significant drop from where we stood last month. Combined with the final jobs numbers for 2017, this means we’ve seen a total of 2,964,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for an average over that period of +164,667 new jobs created, which is a slight decrease from where this average stood as of last month. As I have been saying since the start of the year, these numbers are most certainly not one that indicates an imminent massive increase in hiring by employers.
During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. Based on the average growth rate we have seen since the start of 2017 it would take nearly twelve and one-half years to reach that goal. Based on the average for 2018 to date, it would take roughly ten years to reach the goal. Based on the average jobs growth for the year to date, it would also take roughly twelve years to reach that goal. Based on the average for the past three months, it would also take roughly ten years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the 25,000,000 mark absent a significant change in the nature of the jobs market.
Looking deeper into the numbers, the average workweek across the board was down 0.1 hours to 34.5 hours while average hourly earnings rose 7 cents to $27.05. Over the year, average hourly earnings have risen by 71 cents or 2.7%. These are positive numbers, but still frustratingly low given what seems as though it is becoming tighter labor market. As I’ve said before, this slow wage growth could mean that we’re hitting some sort of equilibrium in the jobs market that will preclude big jumps in either hiring or hourly earnings, what it doesn’t suggest, though, is that we’re going to see massive increases in either number.
Nelson Schwartz at The New York Times offers his takeaway:
The latest job figures follow a steady stream of hiring gains and a robust reading on economic growth. Last week, the Commerce Department reported that gross domestic product expanded at an annual rate of 4.1 percent in the second quarter, the fastest pace in nearly four years.
Like weather forecasters predicting sunny skies in Southern California, economists have watched the labor market produce consistent monthly increases in hiring recently. “I’ve never seen such a steady stream of gains — there’s no volatility in the numbers,” said Ellen Zentner, chief United States economist at Morgan Stanley.
Although the overall gain for July came in slightly below expectations, figures for payroll increases in May and June were revised substantially higher. The Labor Department said the economy added 268,000 jobs in May, up from an initial estimate of 244,000, while the June gain was revised upward to 248,000 from 213,000.
Martha Gimbel, director of economic research at Indeed.com, noted before Friday’s report that in the first half of 2018, the average monthly increase in jobs had even exceeded those in the comparable periods of 2015 and 2016. (With revisions, it was 224,000, compared with 184,000 in the same period last year and 181,000 in 2016.) “It is amazing that at this point in a recovery you are seeing growth that is on average faster than the previous two years,” she said.
The manufacturing sector has been strong recently and gained another 37,000 jobs in July. “We’re not seeing any impact from trade tensions, as it’s too early,” said Scott Anderson, chief economist at Bank of the West in San Francisco. Makers of machinery, fabricated metals and electrical equipment have been among the most aggressive in hiring.
Steel Ceilings in Johnstown, Ohio, hired two hourly workers last month and will hire another two this month if it can find appropriate candidates, said Rick Sandor, the company’s president. That’s not easy these days — shifts run from 5 a.m. to 2 p.m., and temporary workers start at $14 per hour. So as the labor market has tightened, Mr. Sandor has eased up on the requirements for new hires.
In the past, he insisted on a couple of years’ experience in metal fabrication, but now settles for candidates who show mechanical skills, like carpentry or heating and cooling repair. Mr. Sandor is willing to waive the requirement for a high school diploma as well and has even hired applicants with what he terms “minor” prison sentences.
“If a person was truly trying to get their life back together, we thought it would be helpful to offer them a job,” Mr. Sandor said
Looking at these numbers realistically, it’s not likely that we’re going to see the kind of massive increases in hiring that Republicans would like to see, especially in advance of the November elections. As I’ve noted before, we’re in the ninth year of the recovery from the Great Recession, making this the second longest recovery since World War II, with only the period of growth that lasted from March 1991 to March 2001 (120 months) surpassing it in length. (Source) Notwithstanding that length, though, this has also been among the weakest such recoveries, with employment growth averaging only 1.4% and Gross Domestic Product Growth averaging just 2.2%. This puts the current recovery as the second slowest recovery since World War Two, with only the relatively short recovery that lasted from 1945 to 1948 being worse in terms of GDP growth and the recovery that lasted from 2001 to 2007 being worse in terms of jobs growth. (Source) Typically this is the point at which jobs growth slows as employers find that their need for labor has dropped significantly and that the pool of available workers is drying up. This is even more the case in the modern era where increases in both worker productivity and the use of technology have meant that businesses can move forward, and even expand, without having to significantly expand their workforce. Rather than focusing on the jobs number, then, the big number that most economists have been focusing on lately has been wage growth which, so far at least, remains tepid at best.
Hanging above all of this, of course, are two questions.
The first is what impact the Administration’s economic policies will have on the economy going forward. So far at least, we aren’t seeing much indication that the tax cuts put in place in December are having the kind of positive impact that the Administration and Republicans on Capitol Hill hoped that they would either in terms of employment or wage growth. This is likely one reason that the tax cuts still aren’t very well received in the polls, which is one reason why Republicans looking ahead to November are looking for other issues to run on as November gets closer. Perhaps we’ll see some positive impact from the cuts that will help the GOP in November, but it has not shown up yet. On the other side of the coin, of course, are the Administration’s trade policies, which are likely to have a negative impact on economic growth, although it’s not clear when that might start to show up in the economic statistics.
The second question is how all of this might impact the midterm elections. Given the importance that voters tend to put on so-called “pocketbook” issues when they go to the polls, the question of which of these forces ends up having the biggest impact when November rolls around could prove decisive in some close races. In that respect, Republicans arguably have reason to be hopeful since the economy appears to be healthy and it seems unlikely that we’ll see that change at any point in the near future. At the same time, though, the stagnation in wage growth is the area where these statistics tend to hit home for most Americans, and the stagnation in that area seems likely to continue. This is why it will be worthwhile to watch these numbers closely as Election Day gets closer.
Overall, a good post, but I have to call you out about one thing, a real pet peeve. To talk about wage growth (or any other kind of growth) and not take inflation into account is meaningless. Sure, there was 2.7% wage growth. Which almost exactly matches inflation for the time period. Real wage growth was effectively 0%. For nearly thirty years wage growth has been stagnant. Republicans effectively gutted unions and the Labor department and the effect has been that every single penny due to market growth or efficiency has accumulated to the wealthy. Every single penny. But Republicans still see unions as the real evil in society. Because… who the hell knows? My theory is that unions disrupt the class structure and the type of people who become Republicans and Trumpoids are more invested in class division than anyone else, regardless of which side they are on.
The American myth is that oppressive class structures are imposed from above and everyone below is spoiling to overthrow it. The reality is that the lower classes do most of the enforcement. If you read Victorian era stuff or listen to my very old European relatives talk about how their parents viewed marriage outside of their “proper” class, you will see this. “Don’t talk back to your betters”, “Don’t get above your station”, “Know your place”. These were as like to be said by an aunt or a grandfather as by the Lord of the Manor.
BTW, for anyone that is interested in what real wage and labor growth looks like on a regular basis, taking into account both inflation and population growth, Kevin Drum’s monthly post is a fantastic resource. Solid data distilled to its important core.
Incontrovertible fact…job creation during the first 18 months of Dennison’s presidency lags the last 18 months of Obama’s presidency, by an average of ~15,000 jobs a month, or a total of 272,000 jobs. (I’m counting Feb. 2017 as Dennison’s first month)
This in spite of throwing over a trillion dollars at the economy.
I think a lot of companies have become spoiled when it comes to hiring practices, and since Big Business has a lot of politicians in its pocket, it’s easier to whine to them rather than bite the bullet and raise salaries. Too many companies forget that supply vs. demand also holds in the area of employment and think they have an inherent right to top-notch employees at cheap salaries.
There was an article in the WSJ a few weeks back about how restaurants in San Francisco have turned into “bus your own tables” set-ups because restaurants can’t pay salaries even minimally sufficient for the local cost of living, if they want their waiters and waitresses to be in the area. And nobody wants to pay for the time or commuting costs if such individuals live far enough away that the salaries are reasonable.
Excellent comment, MM.
The well-off assume the poor and working poor are seething cauldrons of incipient revolution. Poor people are not primarily envious, or outraged, they’re afraid. Fear is the emotion of poverty. Scared people don’t revolt as a rule, they tug their forelocks and try to play the game not so much to win as to avoid disaster.
My daughter just got her first job – cashier at a local grocery chain. They pay her $15 an hour and promise 32 hours minimum. She just brought home her first two week paycheck. $800 net. Not bad for an 18 year-old high school senior. Unless of course you live in Marin county where it may get you a couch in a shared apartment. Some of her co-workers commute from 40 miles away.
@Michael Reynolds: Looking at extreme cases can shed an interesting light on things (I guess that’s half of the appeal of sci-fi). I spent two years as a Peace Corps volunteer in a village that suffered from overwhelming poverty by our standards. Kwarshiokor (bloated bellies from protein deficiency) was the norm for virtually all the village children. No electricity, no running water. I gained a lot of insights there, but perhaps the most applicable to life in the US is that the poor gamble with much, much higher stakes when they try something that defies the norm. After all, the norms have kept people alive for generations, and people that deviate from them may end up with success, sure, but also may end up with starvation. My kids can try a few things and some may work out and some may not, but they won’t descend into destitution if they originally go into the arts and later decide to become a programmer or vice versa. But if you decide to stop investing your back breaking labor in 100 degree plus heat in cacao and instead switch over to palm nuts, well, you can’t do that in addition to what you are already doing because your time and resources are already maxed out. You have to commit and if you guess wrong and don’t have a relative you can crawl to for a bail out, your family could end up with the maximum sacrifice. One of my students got an infected boil which caused him gastric distress and he couldn’t eat for a number of days and had trouble keeping food down after that. He came very, very close to dying, not from the infection but from the fact that his body fat was near zero when he got sick and without nutrition he couldn’t survive. (Personally, I could last a month….)
Similarly, if my daughter decides the grass is greener in say, LA and it doesn’t work out, she’ll be stressed, but she’ll be able to recover and try again. If a rural Illinois kid who has never even been outside the county, never been in a professional environment, scrapes a few dollars together, gets a bus ticket and tries something like that, it’s not all that unlikely they will end up on the street, unable to even get back home.
True liberalism isn’t giving people handouts – it’s setting up a society where poor kids can get to where the jobs are, mentally and physically.
Sorry for the tangents…
I honestly have no idea how San Francisco still manages to function when the housing is basically out of reach of those with service jobs. Are there no jobs elsewhere in Northern California? Is San Francisco so special that they just can’t see themselves living anywhere else? I’ve been to San Francisco. It was like a big Seattle or Portland.
@Gustopher: The Bay Area has been like this for as long as I remember. Back when I was just out of college, I went to Monterey, CA for a vacation. My rental car was due back at 6 am and my flight left at 11pm, so I took the BART into SF and went across the bay to Sausalito where I saw a sign in a realtor’s office:
IIRC, this was about 1976. I was living on Mercer Island, just in the middle of the lake from Seattle (you’re probably familiar if you live in Seattle), and my rent was $250/mo. My parents were shocked that I had chosen to live in such an expensive area (although my rent was pretty reasonable).
I’ve studied the history of SF some, and from what I recall, living there has always had a cyclical boom/bust element to it, at least since Republic times.
Recently I was poor. I mean poor. Like, supporting myself on 12k/year poor, for several years. And suddenly I had a good opportunity to move from Florida to WA state. I leapt at the chance. After working 60-70 hrs a week all through 2016 at two jobs, I was able to save up $5,000 and drive 3k miles to the room I was renting in a place outside of Olympia. My big-box job that I’d had for 2 years assured me I could put my job here in FL on hold, move there, and pick up the same job.
I loved it. I was happy. WA is gorgeous, the people were great, no TRUMP THAT BITCH bumper-stickers within 100 miles. No confederate flags to be seen.
Cut to 4 months later.
I’d gone to Olympia, applied for my position there. Had 2 great interviews. They hired me. I signed the contract. For 20% more money than I made here. The big-box job I was sure I still had, was mine again. Just waiting to hear about my start date. And waiting. And waiting. My 5k was gone. I’d borrowed $650 from a rich friend to keep paying rent.
And one day I get an email from them telling me I failed the background check, was ineligible to be hired, etc. Good luck, take care, do not bother replying to this message.
Failed the background check. They mailed me, as they were required to do, copies of my background check. There was nothing on my background check. Nothing. I emailed. Nothing. I called. Nothing. I called again. Nothing.
So now I’m 3k miles from home, have 0 dollars in my bank account, and my job disappeared because big box corporations can do whatever they want. I’m late on the rent. I have no gas money for job interviews. I know one person in the state, and she’s getting pissed because I’m late on the rent.
Fortunately I have a relative who has money. I was able to call her and borrow $900 for gas and motels to drive 3,000 miles back to where I still had a trailer to live in.
I was young(ish), healthy, had a decent work history, a good car, a STEM degree, no family to feed, and $5,000 saved up, and still wound up basically bankrupt by trying to move to a better place.
There’s a reason poor people don’t just pull themselves up by their bootstraps, move where the jobs are, etc. The market isn’t going to solve this problem. We need serious government programs to help fix our busted-ass economy.
@teve tory: Glad to hear you eventually recovered from that. You were darn lucky you had someone that can lend you $900.
The thing is, we don’t need handouts. We need government programs that would help people get to the places where the jobs are and put then up for a few days while they interviewed, get them into a some kind of minimum living space until they get on their feet, protections from people taking advantage of the poor sods who have never been farther than the rival high school. People with a few dollars in their pocket or at least a relative in a decent situation can do these things. But the really poor people cannot. They can’t get the money together to go cross country and they have no idea what to do when they get there. What, they end up at the bus station? No drivers license, maybe no ID at all, no money for a hotel. How do they get to a job interview? How would they know where it was at? That’s a platform I can get behind: “We are Americans! We believe no one gets a handout, but everyone should have a shot, whether their family is rich or poor!” That’s America. That’s what we are about. We should start acting like it.
A number of years ago I lived in a rough but basically gentrifying section of Baltimore. Every couple of months I would walk a few miles up to Johns Hopkins Blood Donor center to donate platelets and would go through a really poor neighborhood. There was a fast food place going up, and I didn’t think anything of it (who gives a fast food place a second thought?) but it was a big deal there. One day as I approached I saw a lot of people around it, but it wasn’t even open yet. As I got closer, I realized there was a line there, doubled back on itself many times over. A cop car was there to help keep order. I wondered what was going on and concluded there was some kind of giveaway, probably as some grand opening ad campaign. The next day I read in the paper they were hiring for 20 or 30 positions. Over a thousand people waited all day in the hot sun just for a chance to fill out and hand in an application. I felt so bad I almost cried, thinking about how I hadn’t even given them a thought walking past them.
Oh I know. I was in a relatively great position as far as being poor goes, and I still nearly wound up living under a bridge and foraging in dumpsters. People who blame poor people for being poor are largely stupid. We have an economic system which is turning us into a third-world country and harming everyone, all to give the idle rich slightly higher numbers on their trust fund statements next month. And people who deliberately act like crackheads re Trump and the GOP are keeping us on that path.
@MarkedMan: Good plug for KD. If I could only get one daily blog it would be Drum’s. Sorry OTB
My husband is a software engineer and housing in San Francisco is outside of our reach. Instead we live in one of the most “affordable” parts of the Bay Area, where you can buy a two bedroom house for only $600,000. One of our neighbors commutes over two hours a day to his job at SF airport.
It is insane.
Unemployment in all the San Francisco Bay Area counties in under 4% and it is 2% or less in some. It feels like another crash is due, because this is unsustainable.
@teve tory: I’m glad you are past that, and hope your road going forward is a smooth one.
Your situation speaks to one of my larger anxieties–anyone without considerable means is just one or two bad-luck steps away from truly wrenching problems, and I’m surprised at the human capacity to simply ignore this fact. People just don’t think bad stuff is ever going to happen to them.
I wish you all the best.
@MarkedMan: Excellent comment. Thumbs up not enough. Thank you.
Brief comment to refer to The Atlantic article from a few years ago – ‘The Secret Shame of Middle Class Americans’ (Neil Gabler). He discovered that he was not the only ‘successful’ Caucasian, college graduate who couldn’t find $400.00 bucks in cash on a day’s notice.
What does this great economy really offer those of us in steerage? Besides cheap hamburgers, cable TV and slow internet?