Where the Jobs Really Are

 

Another month, another strong jobs report.

On Friday, the Labor Department reported the economy added 209,000 new jobs in July, the second consecutive month of job growth above 200,000. The unemployment rate ticked down to 4.3%.

The report confirmed what most of us already knew: The U.S. economy is mostly in very good shape. True, workforce participation remains depressed and wage gains are subdued (both for structural reasons, I’d argue), but the good second-quarter GDP number (2.6%) and the last two jobs reports suggest growth may be picking up.

If this continues, even with 2.5% wage growth, I think the Federal Reserve will hike the federal funds rate at least once more this year, though traders currently aren’t expecting it.

Gradual rate increases, accelerating economic growth and solid corporate earnings are all good news for stocks, which is why, though a correction is long overdue, I expect the market to keep moving higher over time.

But I’d like to step back from the weekly market madness to take a closer look at what’s really happening in the job market.

For the last few years, I’ve done a lot of reporting on where the jobs are and aren’t. (I’ll have two in-depth pieces on the subject appearing in the next few weeks and will let you know when they’re published.)

The Bureau of Labor Statistics, which publishes the monthly jobs report, has a wealth of data on labor markets used by corporations, academics and journalists like me. You need to dig deeper below the headline numbers to find out what’s really going on.

The key, I think, lies in which sectors are hiring and which aren’t. In July, three sectors set the pace: eating and drinking establishments (mainly restaurants) added 53,000 jobs, professional and business services tacked on 49,000, and health care hired 39,000 people.

If you look back even further, those three sectors have been leading the pack for some time. In the year ending in June, the three added 1.3 million jobs. (Manufacturing, which is having a much-touted mini-revival, added only 100,000.)

Going back to 1990, they’ve been monster job-creating machines, in some cases doubling their total employment. Professional & business services and health care both added around ten million jobs during that time, while restaurants added another five million—for a grand total of 25 million new jobs, almost a million a year for the past quarter century. Manufacturing lost five million jobs during that time.

The numbers tell the story: The U.S. economy has completed its move from an industrial economy to one based on services, information, and leisure. For investors, workers, and parents, the importance of this can’t be overstated.

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