At the time, the May jobs report was a major source of hand-wringing. Consider these worries as passed. Over the past three months, establishment payrolls have risen by a very healthy 190,000 monthly average. Based on current population growth projections, the job market needs to generate just 75,000 jobs per month to improve the employment ratio and drive down the Unemployment Rate.
The data was fully verified by the Household survey, which reported a massive 420,000 jump in payrolls. Although the Household survey is a particularly volatile indicator as compared to the more popular Establishment survey, it is also more inclusive, factoring in those who are working odd jobs or are otherwise self-employed, a growing segment of the “sharing economy.” One way to think of the Household survey is as a gauge of the strength and accuracy of the headline, Establishment data. For July, the giant Household number certainly verifies the also very strong headline Establishment gains.
Versus the prior month, average hourly earnings rose 0.3 percent, above expectations of 0.2 percent, and above the June growth rate of just 0.1 percent. This amounts to an excellent annualized rate of growth of 3.8 percent. As reported on Tuesday last week, month-over-month Core PCE Inflation was a meager 0.1 percent and just 1.6 percent year-on-year. These two factors amount to real annualized wage gains of 2.2 percent. This is a great sign as real wages have been flat or falling for decades.
The main U-3 Unemployment Rate held at 4.9% while the broader U-6 Unemployment measure ticked higher to 9.7%. Ordinarily, this would be an issue, however, both of these indicators were pushed higher by an estimated 420,000 persons entering the labor force. As a result, the labor force participation rate moved up to 62.8%. So long as the labor force expansion outpaces job gains, the various unemployment rates will be pressured higher. This is necessarily a good thing.
In the aggregate, the labor force has been shrinking for twenty plus years now. If this were indicative of structural shifts, such as retiring baby boomers, then perhaps it could be explained.
However, the Civilian Labor Force Participation Rate of 25-54 year old persons, a measure that should adjust for demographic changes as it measures only prime age workers, is 81 percent, down from a historic high of 84.5 percent last seen in April 2000. With the exception of an increasing number of graduate-level students, there are few explanations for this phenomenon. Assuming this ratio has room for some mean reversion, then it follows that there exist up to several percentage points of labor force slack should the economy become strong enough to pull these persons into the workforce.
The job market has made huge strides since 2008, but there is still plenty of room for improvement.