Why the Huge Jobs Report?

Financial FAQS

MarketWatch

The unemployment rate edged up to 3.7 percent from 3.6 percent as more than 300,000 people entered the labor force in search of work, the Labor Department said Friday. That has confounded those that see slowing economic growth in the second quarter, lowering odds the Fed will begin to drop short term interest rates that have boosted credit card and installment loan payments.

Both the unemployment rate, at 3.7 percent, and the number of unemployed persons, at 6.0 million, changed little in June, said the BLS. And the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.3 million in June. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

Why, the ‘huge’ jobs gain?  In fact, these numbers tell us the US economy is still not at full employment, and most of the hiring is in the service sector that depends more on domestic demand than geopolitical and trade uncertainties.

Professional firms hired 51,000 workers; health-care providers added 35,000 jobs and transportation and warehouse companies boosted payrolls by 24,000. Shippers have been steadily adding jobs for years amid a boom in online shopping.

Construction companies hired 21,000 workers, while manufacturers' employment increased by 17,000. Both industries had grown more slowly this year and added relatively few workers because of the skilled labor shortage. Transportation and warehousing added another 17,000 jobs.

Because most of the hiring was in the service sector that has lower-paying, less skilled jobs, wage growth and inflation are still tame. The average wage paid to American workers rose just 6 cents to $27.90 an hour. The 12-month rate of hourly wage gains was unchanged at 3.1 percent, which is a low rate of gain at this stage of a recovery.

“Wage growth has tapered off recently despite the tightest labor market in decades, suggesting most workers have gained limited power in wresting higher pay from employers,” said MarketWatch. “Firms are also resorting to more automation to speed up production, keep costs down and get around a shortage of skilled labor.”

And state governments continue to hire as they ramp up their own infrastructure projects without waiting for the federal government to act. State and local government hiring brought on a 33,000 surge in public-sector payrolls.

So who knows when this business cycle will end—meaning when will US economic activity begin a downward slope? It hasn’t yet, in spite of the ongoing tariff wars and geopolitical uncertainties that have mainly hurt the manufacturing sector with the sharp cutbacks in exports and decline in world trade, as I mentioned in an earlier column.

But it hasn't yet affected the service sector, where consumers earn and spend most of their money.  This growth cycle won't end as long as consumers continue to spend, in other words.

Harlan Green © 2019

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