Friday, July 08, 2016

Employment Comments: A Strong Report following a Weak Report

by Bill McBride on 7/08/2016 10:04:00 AM

The headline jobs number was very strong, however there were small downward revisions to job growth for prior months.  The key positives were the number of jobs added in June (287,000), a decline in U-6, and a pickup in wage growth.

Earlier: June Employment Report: 287,000 Jobs, 4.9% Unemployment Rate

In June, the year-over-year change was 2.45 million jobs.

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 was at 2.6% YoY in June.  This series is noisy, however overall wage growth is trending up.

Note: CPI has been running under 2%, so there has been 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) decreased by 587,000 to 5.8 million in June, offsetting an increase in May. 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 sharply in June - reversing the sharp increase in May. This level suggests slack still in the labor market.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 9.6% in June - the lowest level since April 2008.

Unemployed over 26 Weeks

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

According to the BLS, there are 1.979 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 1.885 million in May.

This is generally trending down, but is still high.

There are still signs of slack (as example, elevated level of part time workers for economic reasons and U-6), but there also signs the labor market is tightening.

Overall this was a strong report.  However it is just one report and follows a weak report in May (only 11,000 jobs added).  Job growth only averaged 149,000 over the last two months, and 172,000 per month this year.