Friday, August 07, 2015

July Employment Report Comments and more Graphs

by Bill McBride on 8/07/2015 09:52:00 AM

Earlier: July Employment Report: 215,000 Jobs, 5.3% Unemployment Rate

This was a solid employment report with 215,000 jobs added, and employment gains for May and June were revised up slightly.

There was even a little wage growth, from the BLS: "In July, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.99. Over the year, average hourly earnings have risen by 2.1 percent." Weekly hours increased slightly in July.

A few more numbers:  Total employment increased 215,000 from June to July and is now 3.7 million above the previous peak.  Total employment is up 12.4 million from the employment recession low.

Private payroll employment increased 210,000 from June to July, and private employment is now 4.2 million above the previous peak. Private employment is up 13.0 million from the recession low.

In July, the year-over-year change was just over 2.9 million jobs.

Note: The unemployment rate at 5.3%, and still little real wage growth - and a higher than normal level of people working part time for economic reasons - indicates slack in the labor market.  My view, partially based on demographics, is that the unemployment rate can fall below 5% without a significant pickup in inflation.

Overall this was a solid report.

Employment-Population Ratio, 25 to 54 years old

Employment Population Ratio, 25 to 54Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate declined in July to 80.7%, and the 25 to 54 employment population ratio declined to 77.1%.  As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.

Average Hourly Earnings

Wages CES, Nominal and RealThis graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth increased 2.1% YoY - and although the series is noisy - it does appear wage growth is trending up a little.  Wages will probably pick up a little more this year.

Note: CPI has been running under 2%, so there has been some real wage growth.

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July at 6.3 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.
The number of persons working part time for economic reasons decreased in July to 6.32 million from 6.51 million in June.  This is the lowest level since Sept 2008 and suggests slack still in the labor market.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 10.4% in July (lowest level since June 2008).

Unemployed over 26 Weeks

Unemployed Over 26 Weeks This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 2.18 million workers who have been unemployed for more than 26 weeks and still want a job. This was up slightly from 2.12 million in June.

This is trending down, but is still high.

State and Local Government

State and Local GovernmentThis graph shows total state and government payroll employment since January 2007. (Note: Scale doesn't start at zero to better show the change.)

In July 2015, state and local governments added five thousand jobs. State and local government employment is now up 145,000 from the bottom, but still 613,000 below the peak.

State and local employment is now generally increasing - slowly.  And Federal government layoffs appear to have ended (Federal payrolls were unchanged in July, and Federal employment is up 3,000 year-to-date).

Overall this was a solid employment report for July and indicates further improvement in the labor market.