The Economy is Strong and Firing on All Cylinders

The Bureau of Labor Statistics (BLS) released the July national jobs statistics this morning, showing a labor market that continues to surge. The headline unemployment rate and comprehensive jobless rate both fell back toward their recent lows, while employment showed strong growth, especially in the number of part-time workers moving into full time employment. The comprehensive jobless rate offers a benchmark to compare the official unemployment statistics reported by the BLS. Based on Mercatus Center research, this number includes everyone who says they want a job, regardless of their current availability to start employment or how long it has been since they have actively looked for work.

Employment

This month’s jobs report showcases an economy running at full speed. After nearly eight years of job growth employers are still adding workers at a brisk pace, with total nonfarm payroll employment expanding by 157,000 jobs in July. Meanwhile, the employment estimates for May and June were revised upward by a combined 59,000 jobs. This is in addition to employment estimates for March and April being revised upward by a combined 37,000 jobs.

Over the previous year, employment has increased by an average of 204,000 jobs every month, and the Federal Reserve described economic activity as “strong” for the first time since May 2006.

Unemployment

The number of people actively looking for work (those who are ‘officially’ unemployed) fell by 284,000, while the number of people who wanted a job but weren’t actively seeking employment dropped by 95,000. Meanwhile, the number of people who were working part-time but wanted a full time job fell by 176,000.

This isn’t to say that there aren’t people frustrated in their job search: 22.8 percent of the 6.28 million active job-seekers have been jobless for 27 weeks or longer (defined as ‘long-term’ unemployment). There’s another 5.16 million people who say they want work, even though they’re not actively seeking employment. And 4.57 million people wanted a full time job, but were working part-time because of slack work, unfavorable business conditions, or simple inability to find a full time work.

Opportunity

But in an economy with over 162 million workers there’s always going to be some churn in the labor market. People with less experience/schooling/training are working their way up into better jobs and workers naturally transition into more fulfilling or better fitting careers as they develop their skills.

The strength of the current job market offers hope for those who are dissatisfied with their current employment situation, because it’s essentially a “sellers’ market” for people who want to make a change in who buys the fruit of their labor (namely, their employers).

There’s a great deal of evidence that workers have the majority of the bargaining power in the current job market. The most recent Job Openings and Labor Turnover Survey (JOLTS) report shows that there were 0.9 unemployed workers available for every job opening. Meanwhile, the number of voluntary separations—employees quitting their job to pursue a better opportunity continued to rise. In fact, July 2018 marks the highest-ever recorded value for voluntary separations since data collection began in December 2000 (the previous record occurred in January 2001).

Wages

Given the low unemployment rate and steady employment growth, the lack of strong wage growth, which is maintaining an annual growth rate of around 2.7 percent, has puzzled some economists. There are various explanations for this, and each might be contributing in its own way:

• Inflation is not substantially eroding wages, averaging only 2.6 percent annually over the last 30 years. The previous 30 year period, in contrast, experienced higher inflation, leading employers to raise wages or risk losing workers to businesses which had.
• Energy prices, which previously had been a driving factor of inflation, especially as the economy grew and demand for energy rose, are more subdued since fracking technology vastly increased access to known oil and gas resources in the early 2010s.
• Periods of higher wage growth were generally concurrent with periods of stronger productivity growth. Contemporary average productivity growth is substantially lower.

Furthermore, just because wages are not substantially growing does not mean that compensation is not increasing. There’s a large body of media reports that suggest employers are offering increased monetary and non-monetary employment benefits instead. As employees desire a better work-life balance, employers are also reporting that work flexibility and “quality of life” benefits are highly sought after.

• A national survey of employers and employees conducted by The Harris Poll for CareerBuilder found that companies were offering quality of life accommodations to attract employees, including casual dress codes, flexible work schedule, ability to work remotely, extra paid time off, free lunches, gym memberships, and employee discounts.
• Dog-friendly workplaces have become more popular and some employers are going so far as to pay for pet insurance, “doggie day-care”, and “pawternity leave” to attract the top talent for their business.
• A few companies are starting to offer programs to help workers pay off student debt.
• A number of states—most recently Massachusetts—have mandated that employers offer paid sick leave and paid family medical leave. While these employment benefits are often favored by employees, they do represent a cost for employers, meaning that they would tend to restrain wage growth that might otherwise occur. As these policies are adopted by other companies and legislated by other states, they will likely continue to transfer compensation growth from wages to benefits.

None of these employment benefits would count towards ‘wage growth,’ although they are certainly all part of an employee’s overall compensation.

Quick Statistics from the July BLS Jobs Report

Headline Employment Statistics

• Total nonfarm payroll employment increased by 157,000 jobs.
• The labor force participation rate held steady at 62.9 percent.
• The headline unemployment rate (U-3) fell by 0.1 percentage points to 3.9 percent.

Unemployment Statistics

• The mid- to long-term unemployment rate (15 weeks or longer; U-1) ticked upward to 1.5 percent.
• The discouraged worker unemployment rate (U-4) fell by 0.1 percentage points to 4.2 percent.
• The comprehensive jobless rate (U-5b) fell by 0.3 percentage points to 6.8 percent.

Deeper Unemployment Statistics

• Long-term unemployed workers (27 weeks or longer) fell by 43,000 to 1,435,000; the proportion of long-term unemployed workers fell slightly to 22.8 percent of those who are unemployed
• The number of people who wanted to work full time, but who could only find part-time work for economic reasons fell by 176,000 to 4,567,000, which was 17.5 percent of all part-time workers.

Wages

• Average hourly earnings rose by 2.7 percent over the previous 12 months.
• Average weekly earnings rose by 3.0 percent over the previous 12 months.