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A One-Way Jobs Report: the July Cheat Sheet

Josh Wright, Chief Economist | Economist Corner
Friday, Aug 04, 2017
A One-Way Jobs Report: the July Cheat Sheet

With two surveys and dozens of component indicators, it isn’t often that the monthly jobs report speaks with one voice, but July’s came pretty close. There was strength through and through, and the few signs of weakness merely confirmed outstanding challenges around job quality and job polarization. Perhaps the most surprising thing about this report was just how consistent it was.

Here’s your cheat sheet:

  • Nonfarm payrolls of 209,000, with upward revisions to the prior two months, bringing the 3-month average to 195,000 – virtually unchanged from a previously reported 194,000.
  • The “U3” unemployment rate slipped back down to 4.3% from 4.4%, reversing a fraction of the prior month’s uptick.
  • The “U6” underemployment rate was unchanged at 8.6%.
  • Growth in average hourly earnings remains stuck at 2.5% year over year.

Jobs gains remained broad-based, with only utilities shedding jobs, and a negligible -900 at that. In an encouraging sign of forward momentum, temporary help services accelerated (14.7k versus 2.9k) and the diffusion index rose to 63.2, up slightly from 62.5 in June and 54.4 in May. There was no surprise in either the weakness of retail trade (-900 vs. up 1.8k, after 4 months of declines) or the strength of professional & business services (49k vs.32k). It was reassuring to see manufacturing accelerate (16k vs. 12k), despite recent declines in vehicle sales. On the other hand, the outsized gain in the lower-wage leisure & hospitality sector (62k vs. 40k) was a reminder that job quality remains an issue.

Similar themes resounded in the household survey. The unemployment rate edged down by about as little as possible to 4.3% (the unrounded figure was actually 4.3497%). The unemployment rate can be noisy, and it will probably bounce around a bit more before closing the year a few percentage points lower. Payroll growth remains more than strong enough to absorb new workers and even draw in old ones, and indeed it was encouraging to see that the only ranks of the unemployed to rise were those of new entrants and reentrants. That said, the unemployment rate has already declined faster this year than last, despite roughly unchanged payroll gains, so it seems unlikely to drop too much farther.

Involuntary part-time workers declined slightly, but the underemployment rate held steady, as more discouraged and other “marginally attached” workers were drawn in. The most notable sign of slack was the uptick in the stubbornly-high rate of long-term unemployment, which underlines concerns about polarization in the job market, potential skills gaps, and lingering scars from the Great Recession.

Overall, this report supports the Fed proceeding with balance sheet reduction in September. They still have the August jobs report to review, but the Fed’s July statement made it clear that some significant surprises would be required to derail it from a September announcement. In contrast, absent a pick-up in wages or overall inflation, a potential December rate hike is still very much in question. In that respect, this report leaves the market squarely on the fence. Average hourly earnings remained up 2.5% over 12 months earlier, but only because the June figures were revised upward. It would take a figure closer to December's 2.9% to convince the Fed that wages will push inflation higher.

about the author

As chief economist at iCIMS, an industry-leading provider of talent acquisition software, Josh Wright leads a team of data scientists in analyzing emerging trends in the U.S. labor market

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