The June Bureau of Labor Statistics jobs report shows continued growth — 223,000 new jobs added with the official unemployment rate declining to 5.3%. Jobs growth remains steady — rising for 57 straight months, now setting a new record each month – but slow, lagging previous recoveries. The decline in the unemployment rate was largely due to 432,000 people leaving the labor force, reversing the increase that took place in May.
The headline unemployment figure is always misleading. Nearly 17 million people are still in need of full-time work. Long-term unemployment has declined, but remains higher than before the great recession. The employment-population ratio has also not recovered, remaining at 59.3%, marginally lower than a year ago. The portion of the working age population that is employed or wants a job, the labor force participation rate, declined last month and is lower than a year ago. This is not a picture of robust growth.
The BLS reports are important largely as signposts for the Federal Reserve and its pending decision on when to raise interest rates. Fed Chair Janet Yellen sensibly has been focused on disappointing wage growth and looking for “additional strength in the labor market.” She won’t find much that is encouraging in this report. In this month’s report, hourly wages showed no growth, with the yearly average up barely 2%, despite hikes in the minimum wage by more and more cities and states and more and more companies. Average hours worked remained steady.
Speculation is that the Federal Reserve is headed towards beginning to wage interest rates in September. Higher interest rates will be a drag on growth, jobs and thus wages. The Fed would be well advised to wait until more workers find jobs, and the greater demand for workers is reflected in continuing rising wages.
Government employment showed no increase. The US Congress continues to block any investment to rebuild our decrepit infrastructure at a time of record low interest rates. With the US able to borrow for virtually nothing, an investment in infrastructure, as Larry Summers argues, would pay for itself, with even a minimum return in efficiency. No business leader with a whit of sense would refuse to grasp this opportunity. Perhaps Donald Trump who has built his fortune by making far riskier bets with borrowed money could explain this to his colleagues.
Manufacturing employment showed little change, adding 4,000 jobs. For the president to meet his pledge of adding 1 million manufacturing jobs in his second term, he would have to average over 32,000 a month. This seems less and less likely, as manufacturing is weakened by our rising trade deficits, resulting from the strong dollar and our perverse trade policies that the president is intent on extending. The economy has gained only 38,000 manufacturing jobs in the first six months of this year.
The economy continues to add jobs, which is an indisputably good thing. But the pace is slow, and little of the recovery is reaching most Americans. Surveys show that Americans are growing more optimistic about the economy. This is reflected in rising non-revolving consumer credit – significantly student and car loans – which is outpacing after-tax income growth. If the Fed raises interest rates, these debts will grow more costly, putting a crimp on consumer demand. Again, with the Congress refusing to act sensibly, the Fed has every reason to wait until wages are rising and more Americans are working before starting to put on the brakes.