Friday, August 1, 2014

July 2014 jobs report: excellent job creation, poor wage and participation omens

- by New Deal democrat


  • 205,000 jobs added to the economy
  • U3 unemployment rate rose from 6.1% to 6.2%
Wages and participation rates
  • Not in Labor Force, but Want a Job Now: up 144,000 to 6.259 million
  • Employment/population ratio ages 25-54: down from 76.7% to 76.6%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +0.2% or $.04 from $20.58 to $20.61, up 2.0% YoY
May was revised upward by 5,000 to 229,000. June was also revised upward by 10,000 to 298,000. 

Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment.  The headline numbers for July show little progress being made on those two fronts.

Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago.  They have actually slightly risen this year. As noted above they were 6.3 million in July.  This is almost certainly due to the cutoff in extended unemployment benefits by Congress at the end of last year.

After inflation, real hourly wages for nonsupervisory employees were probably unchanged from June to July. The YoY change in average hourly earnings is +2.0%, essentially equal to the inflation rate, so workers are making no real progress at all.

Finally, while the unemployment rate rose, it rose for the "good" reason.  The civilian labor force rose measured by the household survey rose by 329,000, while the number of new jobs in the same survey rose by 131,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were decidedly mixed.

  • the average manufacturing workweek fell by -2 hours from 41.1 to 40.9.  This is one of the 10 components of the LEI, and will have a significant negative impact.

  • construction jobs increased by 22,000. YoY construction jobs are up 211,000, or about 4%.  This is good news.

  • manufacturing jobs  increased by 28,000, and are up about 144,000 YoY.

  • temporary jobs - a leading indicator for jobs overall - increased by 8,500.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by 177,000 to 2,587,000 compared with December's 2,255,000 low.

Other important coincident indicators help us paint a more complete picture of the present:

  • The average workweek for all nonsupervisory workers was unchanged at 33.7 hours.

  • Overtime hours fell 0.1 hour to 3.4 hours.

  • the index of aggregate hours worked in the economy rose by 0.2% from 108.5 to 108.7. 

  • The broad U-6 unemployment rate, that includes discouraged workers increased from12.1% to 12.2.

  • The workforce creased by 329,000.  Part time jobs for economic reasons decreased by -33,000.
Other news included:
  • the alternate jobs number contained in the more volatile household survey increased by 131,000 jobs.  The household survey jobs numbers had been lagging the establishment survey numbers, but as expected this difference has now been almost entirely made up, with the household survey showing a 2,066,000 increase in jobs YoY. 

  • Government jobs increased by 11,000.
  • the overall employment to population ratio for all ages 16 and above rose 0.1% from 58.9 to 59.0%, and has risen by +0.3% YoY. The labor force participation rate rose from 62.8% to 62.9, and has fallen by -0.5% YoY (but remember, this includes droves of retiring Boomers).

In summary, the excellent news is that the headline employment number was good once again.  Jobs are increasing so far this year at the rate of 2.76 million, or nearly 2% of the workforce.  This is the 12th best rate in the last 40 years, and the best since 1999.

The bad news is that no progress at all is being made on the discouraged long term unemployed, or on wages.  Only the prime working age participation rate is increasing.  The likelihood of a return to decent wage growth and full employment before the next recession hits is fading.