Today's Headlines: A Real Jobs Rebound

Economic News you can Use

Today's Headlines: A Real Jobs Rebound
August 9, 2016

Strength In July Jobs

Will the real economic indicator please step forward? Recent monthly jobs reports from the Bureau of Economic Analysis (BEA) left economists puzzled. Which reading was the fluke: the extraordinarily bad May report or the glowing report in June? It appears that May's poor performance was the outlier.

The U.S. economy added 255,000 new jobs in July according to the BEA, again confounding analysts who had predicted around 180,000 new jobs. June's robust reading of 287,000 jobs was revised upward to 292,000 and May's poor numbers were raised from 11,000 jobs created to 24,000. As in June, July growth was relatively broad-based across all sectors with only the struggling mining industry declining (thanks to the collapse of oil prices). Manufacturing showed limited growth with only 9,000 jobs created, while business and professional services led the way with 70,000 new jobs.

Investors wholeheartedly approved the results, and backed up their enthusiasm by sending the stock market to new highs. Both the Nasdaq Composite and the S&P 500 closed with record highs at 5221.12 and 2182.87 respectively.

July's job report is almost perfect from an investor perspective. It's strong in almost all aspects, but not so strong that it is likely to spur the Federal Reserve to raise interest rates. The CME Group boosted its probability forecast of a September increase from 12% to 18%, not enough to cause investor concerns. GDP growth will probably have to accompany job growth (as it eventually will) before the Fed feels that interest rate hikes are warranted.

More Jobs and Higher Wages

While the total jobs numbers were encouraging, wage growth was an even brighter spot. Average hourly earnings increased by 8 cents over the previous month (a 0.3% increase) and by 2.6% over the last 12 months, staying above the pace of inflation. Rising wages and flat inflation mean that consumers now have more money to spend — good news for an economy that is 70% consumer-driven.

In the face of a worldwide economic slowdown and continued strength in the dollar, manufacturers need American consumers to drive a greater need for goods. Consumers are beginning to oblige, according to the last GDP release. The 4.2% growth in consumer spending offset losses in other sectors. Continued wage growth and low prices at the gas pump should keep consumer spending moving forward (in the absence of short-term inflationary pressures), and lead to the increased manufacturing and business investment the economy needs to sustain greater recovery.

Full Employment At Last?

The July unemployment rate stayed steady at 4.9% as the number of unemployed people held at approximately 7.8 million. The alternate U-6 measure of unemployment, which includes those marginally attached to the labor force and those underemployed for economic reasons, stayed relatively flat at 9.7%. Americans who are working part-time but would prefer to work fulltime rose a bit to 5.9 million workers, but that number still represents a 5.7% drop over the past 12 months. The labor force participation rate stayed at 62.8, within the relatively flat range it has held since 2014.

The implication: we are nearing — or have reached — what should be considered a new definition of full employment. By the traditional full employment baseline of 5% unemployment, we have been there for several months.

Even if there are more people on the sidelines today than in earlier decades (as measured by the labor participation rate), the job market may have reached a new equilibrium. If so, there is little more "slack" to pick up and fewer jobs will be required to keep the unemployment rate steady — approximately 80,000 per month according to Jason Furman, Chairman of the Obama administration's Council of Economic Advisers.

Could this lead to a more traditional cycle of wage growth and inflation, where the Fed can allow interest rates to normalize in a more natural fashion? Theoretically, yes. However, the Fed stimulus and bond-buying plan have left the market distorted for so long that the central bank is likely to be cautious in its return toward fiscal normality, for fear of creating greater shocks than equity markets can handle.

Everybody on Board

Perhaps one of the most encouraging signs of the jobs report is the expansion of job growth where it is needed the most — workers with lower levels of education. For those 25 or older with no high school education, the unemployment rate dropped by 118,000. The total number of 669,000 is the lowest number since recordkeeping began in 1992.

America's political unrest — as evidenced by growing populism on the left and right — is in part driven by the fact many less-educated and lower-income Americans have not shared in recent economic growth. Increased job growth in these groups could begin to lessen that unrest. It may not be significant enough to affect the upcoming election, but it will be interesting to see how the campaigns react.

Look Harder, There Must Be Bad News In There Somewhere

Republicans are having a difficult time finding anything in the July jobs report to support their thesis of a wrecked economy. So far, the focus is still on how slow this recovery is as compared to past recoveries — and that is still true, although Americans likely care more about forward momentum in the job market compared to GDP readings. More to the point, they care mainly about their own job prospects.

Unquestionably, another economic curveball is possible, and economic decline right before the election could rapidly reverse electoral fortunes — but at the moment, Democrats are savoring the good news.

The Takeaway

Finally, we have a jobs report with the combined effect of both strong job and wage growth. Economic momentum appears to be building, making future increases in GDP more likely. Conditions are set for consumer spending to stay robust and drive businesses to ramp up production of goods and services.

Two data points don't make an overall trend, but in the broad view, it seems that May's unusually bad report was just that — unusual.

That said, optimists should temper their optimism just a bit. Economic concerns such as residual Brexit effects and a worldwide economic slowdown may keep America's economic growth from reaching its full potential. While conditions are right for manufacturing to take off and recover, the oil industry seems to be in for a prolonged painful period. Moreover, the Fed may throw their own curveball with a pre-election interest rate hike, although few experts predict that will be the case.

All things considered, even with these potential drags on the economy, America is showing signs of long-awaited full-throttle economic recovery. That's good news for everybody — with the possible exception of Donald Trump — in the long run.


Photo ©iStock.com/PeopleImages

  Conversation   |   11 Comments

Add a Comment

By submitting you agree to our Terms of Service
brittany.martinez530 | 08.09.16 @ 14:26
I would think that this would be good news for people. Employment is always such a huge stresser when things are unstable.
Sara | 08.09.16 @ 14:27
I know its going to be weird but I am not really for the whole "real job" mentality. While it might look good now it can easily go downhill just as fast. Though these are great fro those who are wondering about these things.
trish | 08.09.16 @ 14:27
Great to read about a positive trend in the job market
Stokes | 08.09.16 @ 14:28
This is fantastic. I'll be entering the job market soon.
Erin | 08.09.16 @ 14:28
An 8 cent increase on wages isn't very much at all. I guess it's good to hear that wages moved in a positive direction, but 8 cents is a joke. Hopefully that changes soon. I'm glad to see the report shows more positive signs.
Kyle | 08.09.16 @ 14:28
I don't care much for the "real job" thing either.. I think anything that offers steady employment is "real" . however, this is great news either way.
Carla Truett | 08.09.16 @ 14:29
It is about time we get some positive news in the jobs area. We need more jobs in my small town though and I hope it improves here
Jonathan | 08.09.16 @ 14:30
It's great to hear more people are getting better jobs!
Leslie | 08.09.16 @ 14:30
It would be nice to see manufacturing jobs come back. I live in a rural section of NC that has taken a big hit on well paying factory jobs, so this is a little good news,
Irene | 08.09.16 @ 14:30
Great news, and I am happy to say my son recently found a new job too after being out of work for 3 months
Kailie | 08.09.16 @ 14:30
I think it's great news that more stable type jobs are becoming more and more available. Especially with how hectic things have been.
$commenter.renderDisplayableName() | 12.06.16 @ 08:35
{comment}

  Our Professionals Are Available to Help!

  Can't find What You're Looking For?