Why Smaller Payrolls Growth May Be Just Fine

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It’s usually hard to comprehend that sometimes the “less is more” argument can be true. That paradox may be the case for the U.S. Department of Labor’s Employment Situation report on Friday. The report came in lower than expected, but it may be a great report when you look at the jobs mix, add in the higher revisions from June and consider that maybe the jobs market isn’t getting so tight that a worker crisis is about to erupt.

The unemployment rate dipped to 3.9% in July from 4.0% in June. That basically met expectations, although the official unemployment rate has many moving parts that can greatly skew the number each month.

The key nonfarm payrolls added in July came in at 157,000. This looks lighter than the 190,000 expected by Dow Jones, but the June and May numbers showed an additional 59,000 payrolls were added to the prior preliminary reports. July’s private sector payrolls rose by 170,000 and the government payrolls declined by 13,000 in July.

The average wage earned by U.S. workers also rose seven cents (or 0.3%) to $27.05 per hour, and the annual number of pay raises was basically unchanged from a year ago at 2.7% on average.

While 157,000 sounds soft, there is another consideration that pertains to the prior two payrolls reports. June was revised up to 248,000 and May was revised up to 268,000, so this is roughly 100,000 short of the prior two months of gains — and that may have some tariff and trade war impact.

Additional Bureau of Labor Statistics data for July 2018 were shown as follows:

  • The unemployment rates for adult men (3.4 percent) and Whites (3.4 percent) declined in July. The jobless rates for adult women (3.7 percent), teenagers
    (13.1 percent), Blacks (6.6 percent), Asians (3.1 percent), and Hispanics (4.5 percent) showed little or no change over the month.
  • Among the unemployed, the number of reentrants (persons who previously worked but were not in the labor force prior to beginning their job search) to the labor force decreased by 287,000 in July to 1.8 million, following an increase in June.
  • The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.4 million in July and accounted for 22.7 percent of the unemployed.
  • The labor force participation rate, at 62.9 percent in July, was unchanged over the month and over the year. The employment-population ratio, at 60.5 percent, was little changed in July but has increased by 0.3 percentage point over the year.
  • The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July, at 4.6 million, but was down by 669,000 over the year.

Some 1.5 million persons were marginally attached to the labor force, which was little different from a year earlier.

What the endgame seems to be here is that the employment report would have been strong without considering how strong the prior two reports had been. The additional 59,000 payrolls added in the revisions also have to be considered in the mix. And none of the data here seems to be strong enough that Jerome Powell and the Federal Reserve members will feel the need to hike interest rates more than is currently expected.