Friday, August 7, 2015

July jobs report: good, but evidence that this expansion is in its 6th or 7th inning

- by New Deal democrat


  • 215,000 jobs added to the economy
  • U3 unemployment rate unchanged at 5.3% 
With the expansion firmly established, the focus has shifted to wages and the chronic heightened unemployment.  Here's the headlines on those:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: up  +59,000 from 6.076 million to 6.135 million
  • Part time for economic reasons: down  -180,000 from 6.505 million to 6.325 million
  • Employment/population ratio ages 25-54: fell from 77.2% to 77.1 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up +0.1% from $20.98 to $21.01,  up +1.9%YoY. (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
May was revised upward by 6,000.  June was also revised upward by 14,000, for a net change of +14,000.

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

  • the average manufacturing workweek rose 0.1 hours from 41.6 hours to 41.7 hours.  This is one of the 10 components of the LEI and so will affect it positively.

  • construction jobs 6,000.  YoY construction jobs are up 231,000.  

  • manufacturing jobs increased by 15,000, and are up 159,000 YoY.
  • Professional and business employment (generally higher-paying jobs) increased by 27,000 and are up  666,000 YoY.

  • temporary jobs - a leading indicator for jobs overall - fell by 8,900.

  • the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - rose by 133,000 to  2,488,000, compared with December 2013's low of 2,255,000.

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

  • Overtime was unchanged at 3.4 hours.

  • the index of aggregate hours worked in the economy rose sharply by +0.5 from 103.4 to 103.9. 
  • The broad U-6 unemployment rate, that includes discouraged workers declined - 0.1% from 10.5% to 10.4%.
  •  the index of aggregate payrolls also rose sharply by 0.8% from 123.1 to 123.9.
Other news included:    
  • the alternate jobs number contained in the more volatile household survey increased by  101,000 jobs.  This represents an increase of 2,439,000  million increase in jobs YoY vs. 2,915,000 in the establishment survey.  

  • Government jobs rose by 5,000. 
  • the overall employment to population ratio for all ages 16 and above was unchanged at   59.3%  ,  and has risen by +0.3% YoY. The labor force participation rate was also unchanged at  62.6%  and is down -0.3% YoY (remember, this incl udes droves of retiring Boomers). 


This was a positive report with some mixed signals, but titled towards good news. The bad news was  pathetic nomina wage growth, an increase in discouraged workers, a decline inthe E/P ratio in the prime working ages group,  and a decrease in temporary help. The good news included the sharp increase in aggregate hours and payrolls, a decrease in the U6 unemployment rate, a decline in those working part time for economic reasons, positive revisions to prior months, and an increase in manufacturing metrics.

An important longer-term note of caution is that this report, even moreso than most this year, significantly underperformed what the near-record population adjusted rate of initial jobless claims predicted. Hiring is lagging firing, and the YoY growth in employment looks increasingly likely to have peaked.  That tells me we are in the 6th or 7th inning of thhis expansion.  We are beginning to run out of time for significant real and nominal wage growth before the next recession hits, and that means the odds of actual wage deflation in the next recession are starting to increase.