Relax About the Jobs Report, It's Not That Bad
Meager job growth of only 38,000 jobs for May has the doomsayers and perma-bears all up in arms again. But as usual, precious few have reported Friday’s release on June 3 by the Bureau of Labor and Statistics (BLS) beyond quoting the first line or thought about its logical implications. Here are some points to consider when analyzing what initially looks like a jobs report in the doldrums.
First of all, adding jobs on net with unemployment at historic lows is a bit of a conundrum. There are fewer jobs to add when the country is at full employment, which the Federal Reserve has already said the United States has met. At this point it becomes more of a battle for who can attract workers away from one firm and toward another, which does not add jobs but transfers them and adds to wages as one firm outbids another. And indeed, an increase in weekly wages is what we are still seeing. Average weekly earnings of all private sector employees increased another $1.72 in May and haven’t decreased yet this year. In 2008, by contrast, we did see intermittent decreases in weekly earnings together with job losses, which does signal recession. Hourly earnings are a less useful data point because work weeks are cut during recessions.
Second, both the oil and mining industries have been responsible for job losses since 2014. According to the release, mining has lost 207,000 since September 2014, and the oil industry is still undergoing an employment purge of sorts. But both industries seem to be recovering now and those jobs will come back as oil and metals markets rebalance.
Third, a 34,000-strong net job loss was due to a voluntary strike from Verizon Communications Inc. (NYSE: VZ) union workers, which is still ongoing and into its eighth week. As covered previously at 24/7 Wall St., it looks like Verizon is well prepared and could win this fight. When it does, or at least when somebody does, those jobs will go back on the record books and data crunchers can cheer for a good economy again. For now though, Verizon is doing OK without them.
Fourth, the May release is one of the few that did not record any employment gains in the food industry. This is probably more a reflection of recent minimum wage increases in restaurant-heavy New York and California than it is about the economy. Even though some of those increases won’t take effect until the 2020s, the restaurant industry already may be responding by hiring fewer workers. On that note, former McDonald’s Corp. (NYSE: MCD) CEO Ed Rensi said last month that a $15 minimum wage will spur franchisees to invest in skilled robotics over employing humans, but that’s a problem for low-skilled workers rather than the economy as a whole, as long as the quantity of food and customers being served keeps rising. This is not in the purview of the BLS employment report. For that we need to read McDonald’s quarterly reports.
Finally, one data point does not make a trend. Revisions are frequent in the two months following an initial release, so we’ll see what the BLS says in two months and where we are then. For now, as long as unemployment continues trending down and wages continue trending higher, the labor market remains tight and the economy in the boom phase of the business cycle.