July Jobs Report Within Expectations But Far From Spectacular

July's Jobs Report was in line with expectations, but hardly indicative of a booming economy.

With the economy sending mixed signals about its future direction other than to make clear that a recession within the next year seems unlikely, Wall Street traders, politicians, and analysts have been looking to the Jobs Report to give us an idea on where the economy might be headed, at least in the short-term. Throughout most of 2018 we experienced solid, albeit not spectacular, jobs growth, which led many analysts to wonder if we had entered a new phase of “full employment” where jobs growth would slow down somewhat as employer and employees both assess that we’ve reached a point where new job opportunities are going to be rarer than they were when the post-Great Recession recovery was still young. Additionally, many analysts have turned their attention away from the employment numbers themselves and are paying attention to wage growth, which has remained somewhat stagnant in a range of 2.5% to 3.0% annual growth for the past several years.

The new year, though, seemed to open with a bang thanks to a much better than expected January jobs report that defied even being impacted by the five-week government shutdown that did not end until late January. That enthusiasm was scaled back to some degree in February, which saw largely disappointing jobs numbers during the shortest month of the year. Things bounced back in March, though, with the Department of Labor reporting the creation of 196,000 jobs, although the unemployment rate itself remained stable. There were also some slight upward revisions for January and February, but nothing substantial.  In April, we ended up with stronger than expected jobs growth as well as some continued positive signs of wage growth, which had been lagging for much of 2018. Then came May with a report of much lower than expected jobs growth numbers, which actually caused stock markets to rise at the time in hope that it would spur interest rate cuts from the Federal Reserve Board. Continuing with the see-saw effect we’ve seen in the report all year, though, June bounced back with higher than expected jobs growth while the topline unemployment number remained unchanged.

Heading into today’s release of the July jobs report, though, the expectation was that we would see the jobs market stay within the 2019 average with the creation of roughly 165,000 new jobs which would be roughly consistent with the month’s job creation figures from ADP, whose report indicated that 156,000 new jobs had been created during the month. As it turned out, July’s numbers were largely in line with expectations:

Total nonfarm payroll employment rose by 164,000 in July, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in professional and technical services, health care, social assistance, and financial activities.

The unemployment rate held at 3.7 percent in July, and the number of unemployed persons was little changed at 6.1 million. (See table A-1.) Among the major worker groups, the unemployment rate for Asians increased to 2.8 percent in July. The jobless rates for adult men (3.4 percent), adult women (3.4 percent), teenagers (12.8 percent), Whites (3.3 percent), Blacks (6.0 percent), and Hispanics (4.5 percent) showed little or no change over the month. (See tables A-1, A-2, and A-3.)

In July, the number of persons unemployed less than 5 weeks increased by 240,000 to 2.2 million, while the number of long-term unemployed (those jobless for 27 weeks or more) declined by 248,000 to 1.2 million. The long-term unemployed accounted for 19.2 percent of the unemployed. (See table A-12.)

In July, the labor force participation rate was 63.0 percent, and the employment- population ratio was 60.7 percent. Both measures were little changed over the month and over the year. (See table A-1.)

(…)

Total nonfarm payroll employment increased by 164,000 in July, in line with average employment growth in the first 6 months of the year. In 2018, employment gains had averaged 223,000 per month. In July, notable job gains occurred in professional and technical services (+31,000), health care (+30,000), social assistance (+20,000), and financial activities (+18,000). (See table B-1.)

Professional and technical services added 31,000 jobs in July, bringing the 12-month job gain to 300,000. In July, employment increased by 11,000 in computer systems design and related services; this industry accounted for about one-third of employment growth in professional and technical services both over the month and over the year.

Employment in health care rose by 30,000 over the month, reflecting a gain in ambulatory health care services (+29,000). Health care employment has increased by 405,000 over the year, with ambulatory health care services accounting for about two-thirds of the gain. Social assistance added 20,000 jobs in July. Employment in this industry has increased by 143,000 over the year.

In July, financial activities employment rose by 18,000, with most of the gain occurring in insurance carriers and related activities (+11,000). Mining employment declined by 5,000 in July, after showing little net change in recent months.

Manufacturing employment changed little in July (+16,000) and thus far in 2019. Job gains in the industry had averaged 22,000 per month in 2018.

Employment in other major industries, including construction, wholesale trade, retail trade, transportation and warehousing, information, leisure and hospitality, and government, changed little over the month.

In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for May was revised downward from +72,000 to +62,000 and the number for June was revised downward from +224,000 to +193,000. These revisions made for a net downward revision of -41,000 for those two months. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +140,667 net jobs created per month, which is a decrease from the previous three-month average.

Based on these new numbers, we’ve seen total job growth in 2019 of 1,161,000 jobs created, for an average of +165,857 jobs created per month so far this year. By way of comparison, 2018 saw 2,024,000 new jobs created in 2018 as a whole for an average of +168,667 net new jobs per month. Combined with the final jobs numbers for 2017, this means we’ve seen a total of 4,113,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +132,667 new jobs created, which is a slight decrease from where this average stood as of last month and roughly similar to what we saw during the final four years of the Obama Administration.

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 sixteen years to reach that goal. Based on the average for 2019 to date, it would take roughly thirteen years to reach that goal. Based on the average for the past three months, it would also take roughly thirteen 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 President’s goal absent a significant change in the nature of the jobs market.

Looking deeper into the numbers, the average workweek across the board was decreased by 0.1 hours to 34.3 hours while average hourly earnings rose 8 cents to $27.98. Over the year, average hourly earnings have risen at an annualized rate of 3.2%. This is a stronger wage growth number than we’ve seen in recent months, and it’s consistent with the increase we saw last month but it’s worth noting that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip.

As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Looking at other numbers, labor force participation, the long-term unemployment rate inched downward but was relatively stable compared to earlier in the year.

Patricia Cohen at The New York Times has the take away:

Just two days after the Federal Reserve moved to ward off economic snags by paring interest rates, the monthly jobs report signals that the labor market is maintaining its energy during a record-long hiring streak.

While last month’s payroll additions did not match the thumping gains in June, July’s numbers show that employers continue to make room for new job seekers.

“These things bounce around,” Jim O’Sullivan, chief economist at High Frequency Economics, said of the Labor Department’s employment report. “But the trend is still strong enough to keep unemployment down.”

The number of new applicants applying for unemployment insurance has stayed low. And as long as employers create roughly 100,000 jobs each month, the labor market can keep pace with population growth and the jobless rate will hold steady.

The report reinforces the Fed’s stance that the economy’s underpinnings remain strong, even though it is unlikely to temper the push for further rate cuts from investors and President Trump.

That’s because the labor market is not what worries the Fed at the moment. “We expect a slowdown in hiring” this far into the expansion, said Gregory Daco, chief economist of Oxford Economics USA. Anxiety about the economy stems from concerns about a global slowdown, trade tensions, muted inflation and the risk of tightening financial conditions.

Mr. Trump’s announcement on Thursday that he intends to impose a 10 percent tariff on an additional $300 billion worth of Chinese imports created more uncertainty about trade.

Those worries, though most likely behind a slowdown in manufacturing, have not yet trickled down to the rest of economy. Confident consumers are still snapping open their wallets, and employers are searching for more workers.

“We’re seeing it across the economy: Companies are hiring across industries, from data analysts to delivery drivers,” said Becky Frankiewicz, president of ManpowerGroup North America. “I meet with C.E.O.s across the country on a regular basis, and they say they can’t find the skilled workers they need.”

(…)

The number of jobs created this year has not matched the 223,000 monthly average in 2018, when steep tax cuts and government spending revved up the economy.

Still, the low unemployment rate has helped Mr. Trump make the case that the economy’s growth is one of his signature achievements, a boast that is expected to be a cornerstone of his 2020 re-election strategy.

Democratic contenders, by contrast, have had to skip over the labor market when looking for the economy’s soft spots. They have pointed to mediocre wage increases, growing levels of household debt, yawning inequality, slowing growth and rising trade tensions.

During the Democratic debates this week, Senator Bernie Sanders of Vermont, for example, said Americans were “living paycheck to paycheck” and denounced profitable corporations that avoided paying taxes.

Julián Castro, the housing secretary in the Obama administration, declared that “the idea that America is doing just fine is wrong.”

“There are a lot of Americans right now that are hurting,” he said. “Just go and ask the folks that just receivedn notice that they’re getting laid off by General Motors.”

And last month, Senator Elizabeth Warren of Massachusetts posted an essay on Medium warning of “the coming economic crash” and the “economy’s shaky foundation.”

It is a strategy that Mr. Trump used himself during this 2016 campaign. Although the jobless rate dropped sharply and millions of jobs were created during President Barack Obama’s tenure, Mr. Trump hammered away at the economy’s weaknesses, highlighting job losses in manufacturing and dismissing the government’s job reports as phony.

The Washington Post meanwhile accentuated the positive:

Hiring slowed modestly in July as construction and warehouse companies didn’t add many workers, but employers still say this is a “golden age” to get a job or ask for more pay and benefits.

The U.S. economy added 164,000 jobs in July, according to the Labor Department report released Friday, marking 106 straight months of job gains. The unemployment rate remained at 3.7 percent, a half-century low. Hiring has slowed somewhat from last year, but companies continue to bring on new employees at a healthy pace.

“An average of 140,000 jobs over the last few months isn’t terrible, but is a definite slowdown from the numbers we saw last year,” tweeted Martha Gimbel, research director at Indeed’s Hiring Lab.

Nearly all the jobs gains are now coming from the service sector, not blue-collar jobs, a notable change from last year that could be a sign President Trump’s trade war is starting to bite certain industries.

Trump announced on Twitter this week that all Chinese imports will have a tariff on them by September, a sharp escalation of trade tensions that many retailers fear will cause prices of popular items like iPhones, shoes and baby products to rise, discouraging consumers from shopping.

Health care and business are seeing large gains this year while manufacturing employment has been flat as the industry has suffered from tariffs and slowing purchases from abroad. Construction and warehousing also saw anemic hiring in July. Economists had predicted 165,000 job gains last month and the number came in almost exactly on trend.

The United States continues to have more job openings than unemployed, and employers are looking for ways to stand out to attract workers, including by raising pay and benefits. The average hourly wage increased 3.2 percent in the past year, the Labor Department reported, which is well above the rate of inflation, though below the level of wage growth that was seen at the end of the 1990s boom.

“Wage growth should be higher if the labor market were truly at full employment,” said Edward Al-Hussainy, a senior senior analyst at investment firm Columbia Threadneedle.

Wage gains have been strongest, so far this year, for workers earning $12 to $14 an hour and those at the top end of the pay scale who earn more than $60 an hour, according to a new analysis from the left-leaning Economic Policy Institute.

“If you don’t like your job, this is a golden age to find a new one,” said Ian Siegel, chief executive of ZipRecruiter.

While these numbers are good, the fact that jobs growth appears to be slowing is yet another sign that the economic recovery, which entered record territory last month, is definitely at an advanced stage. Among other things, this means that we can expect jobs growth further down the line to slow down or at least not significantly increase from the levels we’ve seen over the past several years. It also means that we should be seeing better wage growth than what we have been seeing so far as employers do what they can to keep employees from straying elsewhere. One of the reasons that may not be happening is that employers may be incentivizing workers through means not measured by wage growth such as better benefits and other enhancements to the working environment. An additional factor at play here is increased productivity due to increases in the use of technology that make a longer workweek or increased hiring unnecessary.

As we get further into the 2020 election cycle, of course, numbers such as this will become more significant. As I’ve said before, the state of the economy is typically one of the most important factors that voters react to when they vote. As things stand, President Trump’s job approval when it comes to the economy is far better than his general approval level and may well be the only thing keeping him afloat. If that changes, then getting re-elected could become even more difficult than it already appears to be.

FILED UNDER: Campaign 2020, Donald Trump, Economics and Business, Politicians, US Politics,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Daryl and his brother Darryl says:

    Job growth is down under Trump.
    I’m not sure why that isn’t the headline for every article, about the survey, this morning.
    More jobs were created in the last 30 months of Obama’s presidency than in Trump’s 30 month old presidency.
    This in spite of Trump goosing the economy with over a trillion dollars of non-recession deficit spending. He gave a tax cut to himself, and his greaseball kids. A trillion dollars wasted…how do you make $1T completely non-productive?
    Trump is squandering the economy he inherited from Obama, the same way he squandered the fortune he inherited from his daddy.

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  2. Actually average jobs growth is roughly the same as it was during Obama’s second term. Given that we’re at the 121st month of the recovery, it isn’t surprising that actual jobs growth is slowing. As iti is, a 3.7% topline unemployment rate is a historic low that we haven’t seen since the late 1960s and there’s only so much more growth we can reasonably expect at this point.

    Also, the truth is that the state of the economy generally speaking is only tangentially related to the policies implemented by a specific President.

  3. Daryl and his brother Darryl says:

    Yes…the economy is only tangentially related to the person in office. But it is of critical importance in any election, especially the election of an incumbent…this incumbent. You said yourself that it

    may well be the only thing keeping him afloat.

    The fact is that almost 30,000 more jobs per month were created in Obama’s last 30 months than in Trump’s 30 months. If more people understood the reality then perhaps nothing would be keeping the fat orange fuq afloat.

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  4. @Daryl and his brother Darryl:

    I tend to doubt that actual economic statistics have that big an impact on votes unless they are headline-grabbing. Most people end up voting based on how they feel about their personal economic position.

    And, in any case, I think you’re missing the point. The fact that the number of jobs created under Obama was higher isn’t surprising given that he was starting from such a low point. Trump inherited an economy that was in the mature stages of an economic recovery. Any economist will tell you that expecting massive jobs growth at this stage of a recovery is unrealistic.

    At the very least, that recovery appears to be continuing and seems unlikely to dip into recessionary territory between now and the election. If that holds up, then it could be the reason voters decide not to switch horses.

  5. Daryl and his brother Darryl says:

    Also, Trump promised, at his rally last night, to cure childhood cancer. So we have that to look forward to…

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  6. Daryl and his brother Darryl says:

    @Doug Mataconis:
    Um…Obama’s last 30 months doesn’t consider the hole Republicans left him in. It shows the trend-line of the last 60 months, and that the trend is clearly slowing under Trump. Trends are what matters in economics…not the monthly data points.
    This kind of thing doesn’t get reported and Trump is left free to claim he created “the greatest economy in history.” The Fourth estate is failing this nation…in part because the real facts don’t make for sensational headlines.

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  7. @Daryl and his brother Darryl:

    the trend is clearly slowing under Trump

    Ask any economist and they’ll tell you that this is to be expected as an economic recovery gets older. We’re at the point now where virtually everyone who wants a job has a job. As I said, the U-3 Unemployment Rate hasn’t been this low since the late 1960s. There is very little room left for massive jobs growth. That’s just a simple fact.

    I don’t care what Trump says, that’s irrelevant. The point is that, to a significant degree, you’re comparing apples and oranges.

  8. michael reynolds says:

    @Doug Mataconis:
    Indeed. If there’s one apple and you buy a second apple you’ve increased the number of apples by 100%. If you have a hundred apples and you add ten apples you’ve increased the number by 10%.

    The thing bubbling under the surface is that people who thought all they needed was a job will begin to realize that job is barely enough to stave off starvation and homelessness, and sometimes not even the latter. There are people in tent cities not far from where I’m sitting who have jobs, what they don’t have is rent money.

    The easy thing is to blame immigrants for undercutting wages. I think there’s some truth in that, but only some. The bigger problem is that too many people do not have skills valuable enough to provide a decent living. If a Salvadoran short order cook is deported, the white guy looking to take that job is still going to have to work like an indentured servant or be replaced by a machine.

    Wait, someone will say, there are no robot short order cooks! Sure there are. I was managing a restaurant in Portland, Maine when I glimpsed the future, and it wasn’t well-paid cooks, it was robots, just not robots in the restaurant. That restaurant switched off freshly-made and went to sous vide and flash frozen – foods prepared by robots.

    So, deport the Salvadoran and the white dude who wants that job either works for the same wage or faces having his job outsourced to robots. Kick out Mexican fruit pickers and you incentivize John Deere to build a machine to pick fruit, you don’t incentivize the white guy to do stoop labor for survival wages.

    The fast food industry (among others) is on the edge of their seats waiting for the cost of labor to rise and the cost of robots to fall. It’s one of the arguments against a minimum wage, to which I would respond that we cannot have a world where humans are in a race to the bottom against machines. A working human should be paid a decent wage. A non-working human should have enough of a safety net that he doesn’t feel the need for revolution. The argument that humans should grovel for scraps because it’s better, somehow, is typically Republican and inhumane, and falls apart if you assume a decent safety net or UBI.

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  9. Daryl and his brother Darryl says:

    @Doug Mataconis:

    As I said, the U-3 Unemployment Rate hasn’t been this low since the late 1960s.

    FYI…the rate of decline in the U-3 has also slowed under Trump.

    The point is that, to a significant degree, you’re comparing apples and oranges.

    I’m not sure how comparing a period of time, to the period of time immediately preceding it, is apples and oranges. I drank 3 beers last night. I also drank three beers the night before, but it’s not the same….

  10. Daryl and his brother Darryl says:

    @Daryl and his brother Darryl:
    @Doug Mataconis:
    Here is the BLS data. You can download the .xls spreadsheet and do your own calculations.
    https://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth
    These guys are all following my comments from earlier…
    https://twitter.com/danpfeiffer/status/1157383786004267008
    https://twitter.com/CAPAction/status/1157314407501881344
    https://mobile.twitter.com/matthewjdowd/status/1157384463086772224

    The media needs to do a better job of reporting on the economy in the Trump administration. Job growth has slowed since Obama years. The stock market growth has slowed since the Obama years. The deficit is up dramatically since the Obama years.

    Apples and oranges…well…Trump is orange…But Obama was a peach.

  11. @Daryl and his brother Darryl:

    You keep missing my point.

    Yes, job growth has tightened over the past several years. This is a natural consequence of the fact that the economy is on the very mature side of the business cycle in terms of this recovery and there simply isn’t much more room for significant job growth. Again, 3.7% is the lowest the U-3 rate has been since the late 60s and its not realistic to think job growth would be much stronger or that the U-3 Unemployment Rate is going to drop much further than it has been since the start of 2017 regardless of who the President is. We are basically at the point that economists call “full employment.”

  12. Sleeping Dog says:

    @michael reynolds:

    A couple of years ago there was a flareup of hysteria regarding burger flipping robots and it was being used by the usual suspects to warn against raising the minimum wage. That got me to wondering what type of return on investment would be needed before we saw a wholesale transition to robots.

    Using a loaded labor cost for a burger flipper of $15/hr for a restaurant that is open 6 AM to Midnight that is about $100,000/yr. Then the question was what would the robot cost, which I had no idea.

    Around the same time the NY Times Magazine had an issue on robotics and one of the articles featured a Minnesota company, Ramsey Engineering. Ramsey does injection molding for the medical industry, that requires very precise and detailed processes. One product line a critical part of the work was being done manually and it had a high failure rate, mostly due to the inability of humans to do the exact same thing repeatedly. A robot was acquired and the human redeployed, while the failure rate plummeted. The robot cost $35,000.

    The only thing that is keeping jobs being automated right now, is consumer brands fear the backlash if they announce they are going to fire thousands of employees and replace them with robots.

  13. grumpy realist says:

    @Sleeping Dog: What’s keeping jobs from being automated right now is that $35K is still a nice chunk of change for a company to come up with, so it’s easier to stick with the standard “human meat” worker which is cheaper from a cash-flow viewpoint.

    Wonder what we’re going to finally do when the robots take precedence? Companies aren’t going to be able to continue shrugging their shoulders and saying “Someone Else’s Problem.” If the bulk of the population can’t find employment, they’re not going to be buying all that stuff the robots are producing. And I suspect we’re going to have a lot of very very angry people.

    This time around, the “Luddites” might win…..

  14. michael reynolds says:

    @Sleeping Dog:

    The only thing that is keeping jobs being automated right now, is consumer brands fear the backlash if they announce they are going to fire thousands of employees and replace them with robots.

    That is a very interesting thought.