The June jobs report from the Bureau of Labor Statistics (BLS) was a pleasant surprise. Not only did new job creation in June surge past analyst’s estimates to reach 288,000 new jobs, the previous months were revised upward as well. May readings were adjusted by 7,000 to 224,000 new jobs, and April readings were adjusted from 282,000 all the way up to 304,000 new jobs. That makes five months in a row with job growth over 200,000, establishing positive momentum.
The unemployment rate also fell from 6.3% to 6.1%, the lowest rate in almost 6 years. Over the course of a year, 2.3 million people have returned to the workforce.
Most sectors showed improvement, led by the 67,000 jobs added in business services. Other growth areas include retail with 40,000 additional jobs, 33,000 for food/drink establishments, 21,000 in health care, 16,000 in durable goods manufacturing, and 17,000 each for the financial services industry and the transportation/warehousing fields.
Sectors with flat growth included government, mining/logging, construction, and the information field.
Tempering the positive job growth numbers is disappointing news about labor participation and wage growth. As there is still slack to absorb from the job losses of the Great Recession, the civilian labor force participation rate has stayed at 62.8% for the third month in a row, and the number of involuntary part-time workers reached 7.5 million after a June increase of 275,000.
Wage increases have also been limited, with only a six-cent raise in the average non-farm employee salary and a four-cent average raise in private sector non-supervisory and production employees. For those on private non-farm payrolls, wages have risen only 2.0% over the course of the last year. Clearly, while a substantial number of new jobs are being created, too many of these jobs are at the lower end of the pay spectrum.
This might explain one aberration in the unemployment news – teen unemployment rose to 21% while most other areas fell. Jobs traditionally taken by teens are likely going to the involuntary part-time and underemployed workers.
While the job numbers are impressive and suggest positive economic momentum, there are enough factors to suggest economic growth will be slow.
The Fed has made it clear they are not going to rely solely on a target unemployment rate to raise interest rates, especially while inflation remains in check. It seems likely that the Fed will not change course on interest rates and the bond-buying scale-back program until the numbers on wage growth, consumer spending, long-term unemployment and labor workforce participation improve.
With a large shadow pool of available labor, there is limited pressure to raise wages (unless, of course, driven by government adjustment of minimum wage). Our takeaway, therefore, is that the employment picture, while improving, remains far from bright – especially for those who have found a new job at considerably lower pay than their last one.
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