Payrolls were up 288,000 and the unemployment rate ticked down to a near six-year low of 6.1% last month, according to today’s employment report from the BLS (a rare Thursday edition due to the holiday weekend). It’s an unquestionably strong report, with industries across the economy posting job gains. Adding to the positive news, job growth estimates for the prior two reports were revised up by 29,000, implying an underlying average growth pace of 272,000 for payrolls in the second quarter of the year.
Unlike some prior months when the jobless rate came down, June’s unemployment rate fell for the “right reasons:” not more people leaving the labor force, but more people getting jobs.
The only negative I’m seeing at first glance is the 275,000 increase in the number of involuntary part-timers (part-time workers who’d rather have full-time jobs). But this is a volatile monthly number and is down 650,000 over the past year. I say more about this group below.
Importantly, wage growth as measured by the annual change in nominal average hourly earnings is up 2% over the past year, precisely the same pace as recent months, and about the rate of inflation. So by that important metric, there’s no evidence that accelerated job growth is creating wage pressures that might raise eyebrows down the street at the Fed.
Below is this month’s version of my “smoother chart,” showing average monthly job growth over the past three, six, and twelve months—a useful way of pulling recent trends out of the bouncy monthly data.
The underlying pace of payroll job growth has clearly accelerated. The year-long average is about 210K, six months is about 230K, and the last quarter, about 270K. This suggests an underlying improvement in the pace of employment growth that may be more durable than some of the “head fakes” we’ve seen earlier in the recovery.
I wouldn’t quite yet call it a “Goldilocks” job market—not too hot, not too cold—because there’s still too much slack. But if this pace of job growth persists, it will help close those gaps a lot quicker than the pace we were seeing a year ago.
A few notable points, and I’ll have more to say throughout the day:
–As noted, most industries added jobs in June. Factory employment was up 16,000 in the month and 130,000 over the past year, with most of the gains over the year coming from the durable goods sector, where weekly earnings are about 20% above the non-durable sector.
–Government added 26,000 jobs, with 18,000 coming from local education, a sub-sector that still has a lot of post-recession damage to make up.
–The closely watched labor force participation rate was unchanged at 62.8% in June, where it’s been stuck for the past three months. That’s still a low, depressed level, begging the very good question: why hasn’t the stronger job market drawn more potential workers in from the sidelines?
–Another important and particularly broad measure of slack in the job market is the under-employment rate (U-6, officially), which includes the millions (7.5 million in June) of part-timers who’d prefer to be working full time, along with some who recently looked for work by gave up because they couldn’t find anything. That rate was 12.1% last month, the lowest it’s been since late 2008, but still about four points above its pre-recession low.
The idea of under-employment measures is to cast a wider net than just those actively looking for work when trying to determine the extent of slack.
Consider, just as a thought experiment, the 7.5 million involuntary part-timers. Let’s say they’re working 25 hours per week on average (that’s about the average weekly hours worked for part-timers) when they’d rather work full-time (40 hours). That over 110 million hours, or almost three million 40-hour weeks that are gone missing from the labor supply. That’s a lot of earnings and output “left on the table.”
So, while this is a strong and welcomed report, we’re far from mopping up all the residual damage from the Great Recession that ended over five years ago. Today’s report provides good news that we’re mopping faster, but we’re not done and there are still perfectly good reasons for monetary and fiscal policy to remain in supportive modes.
More to come as I continue to crunch this interesting packet of numbers.