Payrolls rose 161,000 last month, in yet another in a series of solid reports on conditions in the US job market. Revisions to prior months added 44,000 to job counts, bringing the near-term (3-month average) trend in job growth to a robust 176,000 per month.
The unemployment rate ticked down slightly, but this was due to a slight tick down in the labor force, which remains stuck below 63%, down from 66% before the recession. While most of this decline is attributable to retirees aging out of the workforce, some portion, as discussed below, reflects the fact that, while the job market is clearly strengthening, it is not yet at full employment.
Average hourly wages grew 2.8% over the past year, their fastest growth pace since June 2009, suggesting that the tightening labor market is giving workers more bargaining clout. Since inflation has been running at around 1.5%, the real buying power of an average hour of work is up by more than 1% over a year ago. As I show below, that’s an improvement in the pace of real wage growth compared to earlier in this expansion. Faster real wage growth in recent months is a function of two factors: a) the tightening job market pressuring employers to bid up wage offers, and b) slower price growth that erodes less of the buying power of the nominal wage.
There is, however, an important caveat to the current wage story. While the pay of most workers appears to have gotten a boost from the tighter job market, it may be that higher-paid workers are gaining faster. The growth in the hourly pay of blue-collar workers and non-managers has been stuck at around 2.5% over the past year. That’s still a full point above where it was a few years ago, but this difference–faster growth at the average compared to that of lower-paid workers–is suggestive of the earnings inequality pattern that’s been embedded in our labor market for decades.
There’s a hint in today’s report of one factor that could be in play in these differing wage dynamics. Net employment growth was exclusively in services last month, as goods-producing sectors added zero jobs. Factory jobs have declined (slightly) in each of the last three months, and they’re down 62,000 so far this year. Construction employment has also been weak. These sectoral pressures may be putting downward pressure on wage growth for mid-wage workers.
In order to boost the signal-to-noise ratio of the monthly job gains, the smoother bar chart below shows 3-, 6-, and 12-month averages of monthly payroll changes. Over the past six months, average monthly gains are up around 179,000, a slight deceleration over the 12-month trend. This pattern is what we’d expect as the labor market expansion ages, though there are still underutilized labor resources, i.e., non-workers who could come into the labor market along with employed workers who could work more hours.
This latter group looms large in the underemployment rate—what the BLS calls u-6—which is one of a few indicators which clearly shows we’re not yet at full employment (see figure below). This rate provides a more comprehensive look at the extent of slack remaining in the job market, as it includes just under 6 million involuntary part-timers (IPTs) who’d prefer full-time jobs but can’t find them. While it has fallen sharply off of its recessionary peak, when there were over 9 million IPTs, it has been stubbornly stuck in the mid-9’s (9.5% last month) for most of this year, about one percentage point above its rate at full employment (by my calculations).
Other still-weak measures include the labor force participation rate, though this one is harder to read because, as noted above, demographic factors—our aging workforce—put downward pressure on this measure. A cleaner measure is the employment rate (employment-to-population ratio) of prime-age (25-54 year-old) workers. This metric fell sharply in the recession and has slowly been climbing back, thus far gaining back 3.4 percentage points of its 5.5 point loss, peak-to-trough. (As discussed here, for prime-age men, these cyclical movements are occurring around a long-term, negative trend.)
Of course, as this is the last jobs report before next week’s general election, its results will be scrutinized through that lens, despite the fact that the vast majority of voters’ preferences are already locked down. Still, I thought it would be interesting to compare job market conditions on the eve of this election to that of a few past Octobers in presidential election years.
The table below shows unemployment and underemployment (u-6) rates, along with average monthly payroll gains (Jan-Oct) and real yearly wage growth. By these few, top-line measures, the table shows labor market conditions to be quite solid compared to similar periods in past election cycles, with tighter job markets, and importantly, faster real wage growth (though the inequality caveat from above is germane here). To be clear, election cycles are not synonymous with economic cycles, and the latter dominate in determining these trends.
That said, on the eve of the election, the job market continues to improve, and reliably so–monthly job gains have been steady and strong enough to tighten up employment conditions, which are in turn boosting wage growth (I hasten to add non-inflationary wage growth, Janet and co.!).
Clear pockets of concern remain, including slack as measured by underemployment and prime-age employment rates, and perhaps some evidence of wage inequality, as wage gains may be more significant for higher- as compared to lower-wage workers.
But there’s absolutely no case at all for the Trump message of a terrible US economy, especially among the metrics that people care most about: jobs and paychecks.