July Jobs Report
…..Dow record close, again. Economy adds 209,000 jobs in July. Unemployment rate at 4.3%. Wages up 0.3%. Getting closer to full employment but not yet. Fed on track.
Financial Review by Sinclair Noe for 08-04-2017
DOW + 66 = 22,092
SPX + 4 = 2476
NAS + 11 = 6351
RUT + 7 = 1412
10 Y + .04 = 2.27%
OIL + .49 = 49.52
GOLD – 9.50 = 1259.40
The Dow closed at a record high – the 8th straight record close and the 34th record close this year. For the week, the Dow rose 1.2%, its second straight weekly rise, as well as its fourth positive week of the past five. The S&P rose 0.2% on the week, while the Nasdaq ended lower by 0.4%.
The economy added 209,000 new jobs in July. The unemployment rate dropped from 4.4% to 4.3%, that’s a 16-year low. The government also raised its estimate of new jobs created in June to 231,000 from 222,000. May’s gain was reduced to 145,000 from 152,000, however. Over the past 3 months, the economy has added 195,000 jobs per month on average. Payroll gains averaged 180,000 in the first half of 2017, compared with 193,000 in the second half of 2016. During the first six months of Trump’s term, the economy has added 1,027,000 private sector jobs. July marked the 82nd straight month of job growth, a record.
The U6 measure for unemployment was unchanged at 8.6%; that reading includes unemployed workers plus underutilized or people working part-time for economic reasons.
Wages increased 0.3% in July to an average of $26.36 an hour. But over the past 12 months, wages have risen just 2.5%, the same as in the prior month. Wages usually rise 3% to 4% a year when an economy is running at full throttle. Several factors appear to be holding wages down, including low productivity, global competition, automation, a reluctance among many Americans to switch jobs and a reluctance among employers to pay for workers.
Employment in food services and drinking places rose by 53,000 in July. The hospitality industry has added 313,000 jobs so far this year. Professional and business services added 49,000 jobs. Health care employment increased by 39,000. Manufacturing added 16,000 jobs. Construction, wholesale trade and financial activities each gained 6,000 jobs. And there were 4,000 government jobs added.
President Trump tweeted self-congratulations on what he called an excellent jobs report. That might be an exaggeration. Trump once pledged he would be “the greatest jobs president”. So far, he’s off to a moderate start. So far, he’s only the eighth-greatest among post-war presidents. In terms of relative job growth, the first six months of Trump’s term lags several of his predecessors, including (in order): Carter, Nixon, Johnson, Clinton, Bush (the elder), Kennedy, and Eisenhower. And in terms of absolute job creation, he is lagging Clinton, Reagan, Carter, and Obama (in order). To be fair, there’s little evidence that job growth—especially so early in a president’s first term—has much to do with a new administration’s actions or policies. Recent job growth is more likely a legacy of the final stages of the Obama years. The same goes for Obama’s first six months, which came shortly after Lehman Brothers collapsed and the global financial system seized up during the end of George W. Bush’s tenure. But we don’t measure with a lag.
It was a good jobs report. If there was a blemish in the month’s numbers, it came from the distribution of jobs to lower-income sectors. Job creation was strongly titled to part-time, which gained 393,000 positions, while full-time fell by 54,000.
The Labor Force Participation Rate increased in July to 62.9% from 62.8%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio increased to 60.2%. It’s unclear how long the current growth can continue. The monthly jobs figures are volatile; only two months ago, the May jobs report showed less than 150,00 new jobs. But beyond the month-to-month data, there is reason to think the recovery can keep going. The labor force participation rate for workers age 25-54, workers in their prime working years, increased to 78.7%. New post-recession high for share of working-age adults who have jobs. The labor force grew by 349,000 people in July; the so-called participation rate — the share of adults who are either working or actively looking for work — has been essentially flat for the past year and a half. That’s an impressive trend given the ongoing retirement of the baby boom generation, which puts downward pressure on the participation rate, and it is a sign that the labor market is strong enough to pull workers off the sidelines.
The Federal Reserve will likely look at the July report as confirmation that everything is on track for one more rate hike later in the year. A mild nudge in wages not enough to worry about inflation. With unemployment so low, economists have been watching for signs that the economy is nearing “full employment,” the point at which essentially everyone who wants a job has one. That mark is significant because standard economic theory suggests that once the economy runs out of spare workers, companies will have to start boosting pay to attract employees. That would be a welcome development for workers but would also likely spur the Federal Reserve to raise interest rates to try to keep the economy from overheating.
Minneapolis Fed President Neel Kashkari suggested the report doesn’t change his mind that the Fed should hold off raising interest rates anytime soon. Kaskhari has said all year he wanted the Fed to hold off hiking rates until inflation firms. He said this jobs report showed no hint inflation would move higher. In fact, the Fed’s inflation gauge has softened as the year has progressed, even with strong job gains. Kashkari said the Fed has repeatedly declared the unemployment rate has fallen as far as it could, only to be surprised by strong job growth and labor force participation and weak wages. If Kashkari is correct, it would mean the labor market has more slack than the unemployment rate suggests.
And if you need proof that there is still significant slack in the labor market, look no further than Amazon. Thousands of Americans lined up in the searing heat on Wednesday for Amazon’s Jobs Day, when it had said it would hire 50,000 workers for fairly low-paying, physically demanding jobs in high-pressure warehouses. Perhaps the Fed could have sent a staffer to observe the lines and talk to some of the people in them for insight into the real economy. The jobs offer between $12 and $15 an hour, well above the federal minimum wage. Crucially, they also offer healthcare benefits, absent in a lot of lower-paying jobs. Workers know all too well the labor market is far from great, but policymakers in Washington are bent on insisting otherwise. With the official unemployment rate at a historically low 4.3%, Fed officials seem determined to raise interest rates and shrink their balance sheet despite inflation that continues to slip below their 2% target, indicating more room for the economy to grow more evenly. Companies big and small are rushing to fill a near record number of job openings, but what they aren’t doing is offering bigger paydays. Less skilled workers are much easier to find and companies are unlikely to pay them more than they have to.
Underemployment is still rampant, and wages have long been stuck in a rut. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 5.3 million, was essentially unchanged in July. There are 1.79 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 1.66 million in June. But consider that the economy only needs to add 100,000 new jobs per month to keep pace with population growth, if we continue at the current pace, we will get to full employment – that mythical place where everybody who wants a job gets a job. We’re not there yet, but it was a good jobs report.