Consistent Jobs Growth Is Bringing People Back into the Labor Force

Unemployment ticks up to 4 percent in June

Roy Maurer By Roy Maurer July 6, 2018
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​U.S. employers added 213,000 jobs in June, once again surpassing economists' expectations in a consecutive streak of positive labor market reports issued this year by the Bureau of Labor Statistics. Employment growth has averaged 215,000 jobs per month in 2018.

"Today's jobs report marks the economy's 93rd consecutive month of positive job gains, by far the longest streak on record," said Andrew Chamberlain, chief economist at Glassdoor. "Despite growing uncertainty about a possible U.S. trade war, the economy continues to run hot this summer with many employers riding a wave of tax stimulus."

More good news to many labor market watchers is that over 600,000 workers entered—and many re-entered—the labor force in June, sending the unemployment rate up to 4 percent from 3.8 percent in May.

"Given the talk about labor shortages, it is great to see this increase in labor force participation," said Cathy Barrera, the chief economist for ZipRecruiter, an online employment marketplace based in Santa Monica, Calif. "While the unemployment rate did uptick, it is due to more individuals looking for jobs, which is good news for the labor market."

The labor force participation rate rose by 0.2 percentage points to 62.9 percent. And the share of unemployed workers who were labor market re-entrants in June was at its highest rate since before the Great Recession. "That reflects growing optimism among job seekers, with today's strong economy drawing in sidelined workers resulting in a benign, and likely temporary, uptick in the nation's unemployment rate," Chamberlain said.

Barrera explained that the increase in the size of the labor force came "solely from those with a high school degree or less—good news that the participation of this group is increasing. The anecdotal evidence of labor shortages tend to center on entry-level jobs. So those who have re-entered the labor force this month are a good fit for positions that employers have been struggling to fill," she said.

Marc Cenedella, CEO of Ladders, a careers site headquartered in New York City, agreed, adding, "For employers concerned about a tightening labor market, the continued growth in the workforce and the return of workers who had dropped out during the recession indicate that the strengthening economy will continue to deliver newly available employees for hire in the years ahead."

But Josh Wright, chief economist for recruitment software firm iCIMs, pointed out that a large portion of the increase in labor participation is made up of the long-term unemployed, whose numbers rose by 289,000 in June to 1.5 million. "That said, with involuntary part-time work declining by a substantial 205,000 and wage growth interminably sclerotic, the basic portrait of a labor market with lingering slack and responding well to fiscal stimulus seems intact," he said.

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Trade Worries Haven't Hurt Manufacturing Yet

The top industries adding jobs in June were professional and business services, which includes many technology jobs (50,000 jobs added), manufacturing (36,000 jobs) and health care (34,700 jobs). "While tariffs may slow down job growth moving forward, there is no sign of it yet," said Martha Gimbel, research director for Indeed's Hiring Lab, the labor market research arm of the global jobs search engine. "Notably, manufacturing job growth was strong in June, growing 3.5 percent at an annualized rate compared to its rate over the last year of 2.3 percent."

Construction payrolls continued to expand over the month (13,000 jobs added) as did mining (5,000 jobs added), which continues to recover from a low reached in October 2016.

By contrast, the weakest job gains in June were in retail. "The retail rebound [in May] was premature," Wright said. "Retail payrolls declined by 21,600, almost fully reversing the May rebound of 25,100. Most of the declines within retail payrolls were reversals of the prior month's areas of strength, notably general merchandise stores."

Wage Growth in a Holding Pattern

In June, average hourly earnings rose by 5 cents to $26.98—up 2.7 percent from a year ago but unchanged from May.

"Wage growth continues to bounce around in the range that we've seen since the beginning of 2016," Gimbel said. "With payroll growth continuing at this pace, and several measures such as the prime-age employment rate still not fully recovered, it seems likely that workers may have to continue to wait to see wage growth show up."

Holding steady is a good sign, Barrera said, because some signals showed that it could've declined in June. "The increased labor force participation could create slack in the labor market if there isn't enough demand for those workers," she explained. "In this case, wage growth may be dampened. That the rate did not decline further indicates that these workers are alleviating a shortage rather than creating slack."

She also pointed out that young people and those without a college degree—people who tend to earn lower wages than average—have been seeing the biggest employment gains recently. "Since the growth rate is calculated on the average, adding jobs at that lower end of the spectrum would tend to lower the average wage," she said.

Recruiting in a Candidate's Market

Tightening labor market conditions that favor the job seeker places the onus for sourcing talent on recruiters and hiring managers.

Nick Cromydas, CEO and co-founder of Hunt Club, a tech-enabled recruiting service based in Chicago, said employers need to make the following adjustments in order to compete for talent with such low unemployment:

*Increase focus on passive candidates. The best candidates for an opening are less likely to be actively searching for a new position and much more likely to be already employed, but open to hearing about new opportunities, he said. "To reach these passive candidates, recruiters can't just offer a title bump. They need to demonstrate why a new position is tailored to the candidate, and how it fits within a longer-term career plan."

*Personalize your approach to better connect with candidates. Cromydas said that recruiters should set themselves apart by building personal relationships with candidates, becoming more like career coaches to earn a candidate's trust and investing in the candidate experience.

"In this buyer's market, candidates are simply going to ignore cold outreach," he said.

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