July jobs: nice pop on payrolls but flat wage growth

July 5th, 2019 at 9:18 am

[This jobs report is an important one in terms of assessing the impact of headwinds on the job market, but because it’s sort of a holiday, I’ll just offer up a truncated, bullet-point report. As always, thanks to Kathleen Bryant, who got up early on vacation to help me out!]

Toplines:

–Payrolls rose 224,000 last month, well above expectations for ~165K. Though we never want to over-weight one month of noisy data, that’s an important number, suggesting that building economic headwinds haven’t dented job creation much yet at all.

–Our monthly smoother shows average monthly job gains over 3, 6, and 12-month windows. Even including May’s weak 72K (revised) gain, the average over both the past 3 and 6 months has been around 170K jobs/month. That’s a slight downshift from the 12-month average but still a very solid number, one that should handily support the ongoing expansion.

–The unemployment rate ticked up to 3.7% (a statistically insignificant change, btw), but that was mostly due to more people coming into the labor force–the participation rate nudged up 0.1 ppts to 62.9%.

–That’s all good news, but the evolving wage story is less so. As the figures below reveal, our 6-mos rolling average of yr/yr nominal wage growth shows the trend (versus the noisier monthly values) is stalled or even trailing off a bit. This too, is an important finding, suggesting that a) there’s still “room-to-run” in this expansion as labor supply doesn’t appear to be tapped out, b) even with unemployment near 50-yer lows, too many workers still lack the bargaining clout they need.

–That said, nominal wage gains are beating consumer inflation, which is running a bit below 2%, so the buying power of paychecks is rising. Again, this combination of solid job gains, low inflation, and nominal wage growth around 3% should handily support the expansion in at least the near term.

Other observations:

–Gov’t added 33K jobs, and some are saying that’s related to hiring for the decennial Census. Such hiring does and will cause a temporary spike in payrolls, but federal gov’t employment was up only 2K last month. Local gov’t added 29K jobs, so this doesn’t look like a Census issue.

–Manufacturing had a better month in June, adding 17K jobs after being flat for most of the year. One month doesn’t change the recent trend, and the factory sector remains high on the watch list, as the trade war, stronger dollar, and our expanding trade deficit may put downward pressure on the sector in coming months.

–This is a tricky jobs report the Federal Reserve, which is meeting later this month and is expected to cut its benchmark interest rate. But with unemployment below their estimate of the “natural rate” (the lowest jobless rate believed to be consistent with stable prices) and average payrolls gains well north of the “equilibrium” level (the level required to keep unemployment from rising), they will not see a rate cut as an obvious necessity.

–Pushing the other direction–toward a rate cut–are below-target inflation and the absence of wage acceleration.

–So, it’s quantities versus prices! May the best variable win. While I carry a fairly hefty rate-cut bias, I’m not sure what I’d vote for were I at the FOMC table. Given the need for sustained real wage growth for the majority of workers left behind during decades of rising inequality, I’m leaning toward “prices,” as in cut rates in the hopes of even lower unemployment and the possibility of bending the wage-growth curve back up. But I’ll think on it and get back to you later with a definitive call!

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2 comments in reply to "July jobs: nice pop on payrolls but flat wage growth"

  1. Bob Palmer says:

    Thank you for your ongoing work on wages, employment, and earnings. Trends do appear to be leveling off, but far too early to suggest reversals. Amazing how well labor is doing without much help from manufacturing employment.


  2. Kev says:

    Given the crisis at the border and the resulting larger number of new labor market entrants, both legal and illegal, monthly jobs growth must be higher to maintain upward wage pressure.

    So while recent job creation numbers are good, given the pop in immigration, circumstances have changed and the job numbers are not good as they appear to be. The flat wage growth, especially for blue collar workers, is what should be expected at the higher immigration numbers.


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