The U.S. economy added 224,000 jobs in June on a seasonally-adjusted basis, according to data released on Friday by the Bureau of Labor Statistics. Analysts had been expecting an increase of 162,000 which would have been broadly consistent with the average increase in employment of 164,000 jobs a month from January through May.
The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite were all about 0.8% lower in Friday morning trading, as investors saw the strong jobs growth as reducing the likelihood that the Fed will lower interest rates this month.
The strong gains in June were slightly offset by downward revisions to the previous estimates for job growth in April and May by 11,000. The net effect is that the BLS now believes just over 1 million jobs were added in the first half of 2019, for an average increase of 172,000 jobs each month.
The latest release suggests the pace of job growth has not changed much since the beginning of the year. Over the past three months, the U.S. economy added about 171,000 jobs, on average, compared with 174,000 jobs in the first quarter. These averages probably reflect underlying economic conditions much better than the substantial month-to-month variation observed since January.
The current rate of job growth is significantly slower than the robust rate of job growth in the first six months of 2018, when the economy added 1.4 million jobs on a seasonally-adjusted basis, or about 235,000 a month. If current growth rates persist, about 2.1 million more Americans will have jobs at the end of 2019 than at the end of 2018 and the employment-growth rate would be about 1.4%. By comparison, the number of Americans with jobs rose by 2.7 million between the end of 2017 and the end of 2018, with a growth rate of about 1.8%.
This represents a slight improvement over the previous month’s release, when the data had been implying slightly slower job growth.
The number of people with a job is an imprecise guide to business conditions, however. The unemployment rate (currently 3.7%, up from 3.6% last month) is the standard answer, but that number has been mostly useless as a cyclical indicator during this recovery. Many economists, particularly at the Federal Reserve, mistakenly believed unemployment could not drop below 5.5% without sparking excess inflation. They only belatedly realized that the headline figure was distorted by people who had stopped being counted during the downturn but then reappeared looking for jobs as the economy began to improve.
A better approach, suggested by the economists David Bell and David Blanchflower, is to look at the proportion of people with jobs who are working “part-time for economic reasons.” They have found that is a more accurate measure of workers’ ability to secure wage increases than the conventional unemployment rate.
This underemployment indicator had been hovering around 3% in the second half of 2018, down from about 6.5% in 2009-2010. The Bell/Blanchflower measure of underemployment was under 2.5% in 1999-2001. It was extremely volatile in January and February, likely due to the combined impact of the government shutdown and the polar vortex, but was anchored to the 3% level since last summer. The most recent figures suggest this measure of underemployment may be dropping: over the past three months, the average has been 2.8%, the lowest level since 2006.
Another perspective is to focus on the change in employment relative to the change in the number of people who could be working. Many analysts therefore track the share of people with a job, particularly those aged 25-54. This “prime age” employment rate had dropped from 80% in 2006-7 to just 75% by the end of 2009. Little progress was made between then and the end of 2013. The prime age employment rate had steadily increased since then to just below 80% by October 2018. However, the share of Americans with a job has been flat since then.
The good news is that the job market is not yet deteriorating. The bad news is that it seems to have stopped improving and remains below where it could be. The current prime-age employment rate is close to the level reached shortly before the financial crisis, but is still about 1.5 percentage point below the 1999-2000 average. Moreover, this measure of employment has been flat for several months, which implies job growth has slowed down relative to the rising number of Americans looking for work.
The stability of the employment rate is also reflected in the latest report’s new data on pay. The government has tracked average hourly earnings for “production and nonsupervisory workers” since the 1960s and began including managers in 2006. Hourly wages for private-sector workers have increased 3.1% over the past year, which is broadly in line with the growth rate since October and slightly slower than the peak growth rate at the end of last year.
The next jobs report will be released on August 2.
Write to Matthew C. Klein at matthew.klein@barrons.com