The Big Jobs Report Number No One Noticed


June’s jobs report, released Friday morning, was the best in months, by almost every measure.

The headline number was that in June the U.S. economy added 222,000 jobs, the most since February. Also, the April and May totals were revised upward by 47,000, demolishing the idea of a “weak spring”: The last three months saw 194,000 additional jobs on average.

The unemployment rate ticked up to 4.4%, but that may have been because more discouraged workers reentered the labor force. (Workforce participation rose in tandem with unemployment last month.)

And, in a disappointing number, hourly earnings grew by only 0.2%, or 2.5% over the last 12 months. Despite a labor market close to full employment and theoretically millions of unfilled jobs, employers still haven’t found it worth their while to raise wages.

But in all the punditry and instant analysis that followed, one number got short shrift, in my opinion.

That was 180,000—the number of jobs the economy added each month over the past year.

Why does it matter? Because it’s exactly the amount of jobs, on average, that were added monthly in 2016.

That tells us three things:

First, the economy has found its natural level of growth for now: 2-2.5% GDP growth and 150-200,000 new jobs a month. Both are modest and fairly typical for the later stages of an economic cycle, but they look pretty sustainable and show there’s no sign of overheating.

Second, the promise of regulatory reform and a “pro-growth” agenda that greeted the new Trump Administration may have boosted sentiment and business confidence (the so-called “soft” data), but it hasn’t yet translated into the real economy (the “hard data”). This is basically still the Obama economy and will be until GDP, jobs, and especially wage growth kick in at a higher gear.

Some of this may be because tax reform, the heart of the “pro-growth” hypothesis, has stalled as Congress has gotten bogged down in reform of health care reform. When it gets back from its long summer recess, which resembles vacations in France, Congress will have to write a new budget, lift the debt ceiling and keep the government from shutting down. Tax reform will have to wait until 2018.

Third, the strong June jobs numbers and that 180,000—a–month average will keep the Federal Reserve on track to gradually raise the federal funds rate and sell off the trillions of dollars in securities it bought after the financial crisis. Other central banks are following the Fed’s lead, which means that barring new disasters, we’re on a long, slow slog back to normal.

Investors responded by pushing major market indices higher. Steady as she goes always sells well on Wall Street. What’s not to like?


One thought on “The Big Jobs Report Number No One Noticed

  1. Excellent column as always. I particularly like 2 points you made: a) the difference between hard and soft data; and b) that Congress’s long recess resembles vacations in France!!

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