Employment Report Surpasses Expectations

By Roy Maurer Jul 12, 2016
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The surge in hiring shown in the latest jobs report from the Bureau of Labor Statistics (BLS) was unexpected after the agency's dreadful employment report in May. Though Britain's vote to leave the European Union came in June​, analysts' predictions about impact on the job market were dire. However, U.S. employers added 287,000 jobs in June, exceeding analysts' projections.

The robust employment report from June has special significance because it is the last before the presumptive Republican and Democratic presidential nominees will present their competing economic visions at their respective party conventions later this month.

"The report reverses several months of tepid labor market gains," said Tara Sinclair, chief economist for the job site Indeed, based in Austin, Texas. "This is the highest job growth figure since October 2015, and assuages fears that we'd be on a downward trend for the rest of the year. The rebound shows that employers in the U.S. are continuing to hire at a solid clip, and that last month's revised number of 11,000 was an anomaly."

After revisions, the BLS reported just 11,000 jobs gained in May, down from 38,000. "The [May] report caught many analysts by surprise," said Andrew Chamberlain, chief economist for employer review site Glassdoor, based in the San Francisco area. "Many commentators since then have been waiting for the other shoe to drop on signs of a broader economic slowdown, and their forecasts reflect it. However, despite this pessimism, the [evidence] that the U.S. economy is barreling toward a slowdown simply hasn't yet materialized," he said. "According to nearly every source of data we have available today, the U.S. labor market still appears remarkably healthy with no clear signs of an impending slowdown on the horizon."

Josh Wright, chief economist at applicant tracking system and recruitment software firm iCIMS, based in Matawan, N.J., said the shockingly low May numbers may have been just noise. "Even in an economic expansion, you sometimes see the occasional month of outright job losses. Before the May report, many analysts had been noting how unusually steady job growth had been over the last 68 months, so we may have been overdue for an off month."

Summer Fun Drives Hiring

Leisure and hospitality employers added 59,000 jobs in June, the most of any sector, followed by health care and social assistance (58,000), information technology (44,000), professional and business services (38,000), and retail (30,000).

"It's good to see the variety of jobs employers are hiring for, with a broad range of roles being filled," Sinclair said. "Although it's important to note that two key sectors, construction and manufacturing, remained flat."

Employment in mining continued to trend down in June (-6,000). Since reaching a peak in September 2014, mining has lost 211,000 jobs.

Wage Growth 'Unimpressive'

Average hourly earnings for all employees edged up two cents to $25.61, following a six-cent increase in May. "The 2.6 percent rise in average hourly earnings is unimpressive since it is calculated relative to June 2015's weak wage figures," Wright said. "Wage growth remains at the top of its post-crisis range but still below the 3 percent to 4 percent range that was normal in the pre-crisis era."

Labor Force Participation Rises

The unemployment rate increased by 0.2 percentage point to 4.9 percent in June, and the number of unemployed increased by 347,000 to 7.8 million. This was due in part to a rise in labor force participation, stuck on low for years, which ticked up to 62.7 percent, Wright said.

The unemployment rates for adult women (4.5 percent) and whites (4.4 percent) rose in June, while the rates for adult men (4.5 percent), Asians (3.5 percent), blacks (8.6 percent), Hispanics (5.8 percent) and teenagers (16.0 percent) showed little or no change.

The number of long-term unemployed (those jobless for 27 weeks or more) sits at 2.0 million and accounts for 25.8 percent of the unemployed.

The number of individuals categorized as involuntary part-time workers—those seeking full-time employment but working part time—decreased by 587,000 to 5.8 million in June. "Part-time work more than reversed its May rise but remains elevated, so concerns about the quality of new jobs are going to persist," Wright said.

Additionally, 1.8 million people were considered marginally attached to the labor force—that is, they are unemployed but want and are available to work, and had looked for a job sometime in the previous 12 months. Among this group, 502,000 individuals were considered discouraged—not currently looking for work because they believe no jobs are available for them.

The remaining 1.3 million people marginally attached to the labor force in June had not searched for work in the past month for reasons such as school attendance or family responsibilities, according to the BLS.

Uncertainty Going Forward

Over the past three months, job gains have averaged 147,000 per month, according to the BLS. "That's lower than the 200,000 we have gotten used to since the economic recovery, and shows a general cooling," Sinclair said. "Meanwhile, the uncertainty of Brexit for the global economy still looms, and may mean employers pull back on hiring in July and beyond."

Wright noted the Federal Reserve's concerns about the Brexit vote. "Unless we start seeing some direct effects from the Brexit on the U.S. outlook for inflation or growth, the Fed is likely to start talking up the possibility of a rate hike in September or December," he said.

Ken Esch, a Chicago-based partner at PricewaterhouseCoopers, predicted that "private companies will carry on with a hypertargeted approach to their hiring plans" due to uneasy global markets. "The upward swing in [June] job figures demonstrates U.S. companies' mission to attract and retain strong talent. We'll likely see them search for ways to optimize their existing staff and leverage technology to minimize dependency on sourcing new talent while the global and U.S. markets stabilize."

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