Economy Adds Disappointing 157K jobs in July; Unemployment Rate Drops Back to 3.9%

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Number of payroll jobs INCREASED 157,000 in July;
  • Unemployment rate in July FELL to 3.9 percent;
  • Average weekly earnings DROPPED 28¢ in July to $933.23, a 2.8 percent year-year gain, down from a 3.0 percent year-year gain in June;
  • Average hourly earnings GREW 7¢, in June a 2.5 percent annual increase
  • Private sector jobs INCREASED 170,000;
  • Number of multiple jobholders grew 453,000, almost 3x the number of “new” jobs;
  • Prior month job totals REVISED up 59K: UP 35,000 in June to a growth of 248,000 jobs (from 213,000) UP in May to a gain of 268,000 (from the last report of a 244,000 increase);
  • The number of persons unemployed FELL 284,000 as 287,000 fewer individuals re-entered the labor force;
  • The number of person employed ROSE, 389,000;
  • Average weekly hours SLIPPED to5 in July from 34.6 in June;
  • Labor force – ROSE 105,000 in June;
  • The number of persons NOT in the labor force INCREASED 96,000;
  • Labor force participation rate REMAINED at 62.9 percent;
  • Employment-Population ratio ROSE to 60.5 percent,
  • By sector number of professional and business service jobs ROSE 51,000 paced by a 27,900 increase in temp jobs; number of leisure and hospitality jobs grew 40,000 with 33,800 new food service jobs; number of retail jobs INCREASED 7,100;
  • Manufacturing jobs INCREASED 37,000.

Trends:

  • Increase in the number of multiple jobholders was the largest since October 2014 (481,000)
  • Multiple jobholders represented 5.0 percent of all jobholders in July, up from 4.7 percent in June;
  • Month-month increase in temporary jobs (27,900) was the largest since September 2016 (35,500).

Data Source Bureau of Labor Statistics

Image result for labor market

The June Employment Situation report from the Bureau of Labor Statistics was another mixed bag: a smaller than expected increase in the number of payrolls (157,000 versus market consensus of 190,000) but a decline in the unemployment rate.

Why the dichotomy?

For starters, the increase in good-producing jobs has leveled off, albeit at a still strong monthly average of 52,000 for the last three months, down from 60,000 for the first four months of the year.

The drop in the unemployment rate itself stems from a faster increase in the labor force (the sum of those employed and those unemployed) – up 1.8 million in the last year — than the decline in the number of persons unemployed (679,000). It also reflects a slowdown in the number of individuals re-entering the job market.

The number of re-entrants average 2,200 per month in the last two years as the economy was recovering from the Recession to an average of 1,950 in the first seven months of this year.

What’s more intriguing perhaps is the labor force participation rate – the percentage of the over-16 population either employed or unemployed – has been unchanged in the last year at 62.9 percent, well below pre-recession levels.

And below the headline numbers of jobs and the unemployment rate remains the stubbornly stagnant wage picture which seems to defy normal laws of labor supply and demand. With the unemployment rate generally at its lowest level of this century, year-year growth in hourly wages is a full percentage point below where it was the last time the unemployment was as low as it is now.

Taken together that suggests an out of synch economy unless we’re in the midst of a new paradigm.

All that would be fine if prices were stable, but we’ve seen an inexorable – albeit relatively small – increase in the cost of living along with a slowing in key economic sectors. With the Federal Open Market Committee remaining on course to increase interest rates, the situation could only get worse.

Home sale activity, for example, remains slow. As a result, residential construction jobs represent 1.9 percent of all jobs, down from 2.5 percent at their peak. Instead, low-paying leisure and hospitality jobs – primarily food service jobs, now account for almost 11 percent of all jobs.

We’ve yet to feel the effects of the trade war started by the Trump Administration which will impact the cost of home construction.

Hear Mark Lieberman every Friday morning at 6:20 am on The Morning Briefing on POTUS on Sirius-XM 124. You can follow Mark Lieberman on Twitter at @foxeconomics.

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