Still a solid job market, but with a cloud or two

August 2nd, 2019 at 9:35 am

Payrolls rose 164,000 last month and the unemployment rate held steady at 3.7 percent. Wage growth accelerated very slightly–3.1% in June to 3.2% in July (year-over-year nominal hourly pay)–but it has been roughly stalled just north of 3 so far this year.

Downward revisions for the prior two months–May and June–appear to have slowed the underlying trend in job growth. In our report from last month, we showed the 3 and 6-month trends to be 170K jobs per month. As this month’s jobs smoother shows, both the 3 and 6 month averages are now about 140K.

Part of this is deceleration is because two big job months–January and April–dropped out of the 6 and 3 month averages, so this slowdown may not stick. But if it does, it raises the question of whether job growth is slowing because long expansion is exhausting the supply of workers available to the job market, or whether employer demand is slightly softening (or some combination of the two). As always, it will take many more monthly reports to reliably answer the question, but recent wage trends offer a hint that softening demand could be the dominant factor.

As the figures below reveal, particularly the 6-month moving averages (dark line), wage growth is roughly stalled a bit above 3 percent. This could be a function of the unemployment rate low but stable–it has stayed between 3.7 and 4 percent since March of 2018–or it could represent less worker bargaining clout due to slightly weaker labor demand.

To be clear, however, these are nuanced reflections as the job market remains strong and, if not at full employment, closer to it than has been the case for most of the past few decades (with the latter 1990s as the most recent exception). In fact, as the next figure shows, while nominal wage growth of mid-wage workers has flattened over the past few months, low inflation has helped to generate solid real gains of about 1.5 percent.

Here are a few other notable findings from today’s report:

Manufacturing ain’t what it used to be. Over the past 6 months, the factory sector has added just 6,300 jobs/month. Over the prior 6 months, the sector was adding 19,800 per month. The trade war is part of the explanation, and that looks to be getting worse before it gets better.

Where are the Census jobs? Typically, by this time in years that end in a ‘9’ we see some hiring of Census takers for the decennial Census. It’s possible that budget issues or the squabble over the citizenship question are slowing hiring in this round, which could be worrisome for the process.

–Are prime-age epops topping out? This one’s a potential big deal. The prime-age (25-54) employment rate has been a go-to variable for those of us arguing there’s “room-to-run” in the job market. In July, it ticked down slightly from 79.7 to 79.5 percent, exclusively due to women: their rate fell by half-a-percent, from 73.5 to 73 percent. But more notable is the recent trend shown in the figure which shows the variable falling off its peak in recent months. In other work, I’ve noted that the prime-age epop tends to peak before a recession, so this bears close watching (see figure).

All told, we’ve got a solid job market with some very tentative softening signs. Manufacturing is being hit by destructive trade policy, and wage gains have stalled out a bit. But they’ve done so at a pace well above inflation, so paychecks are growing in real terms.


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One comment in reply to "Still a solid job market, but with a cloud or two"

  1. Andy McDonald says:

    I wish you all would hit back when the supply-siders claim the tax cuts are helping the economy. The federal investments are what boosted the economy in the last year. There was always big investments that went with the big tax cut. It was the investments that boosted the economy when Reagan cut, when Bush cut, and now when Trump cut. Republicans did not help Obama with any investments and that held the economy down. They actually made the country de-invest in Defense because they know investments help the economy.