Sunday, July 10, 2016

June job growth booms...back to average

Friday's jobs report was viewed with more than the typical anticipation, because of May's severe drop-off in growth and the looming presidential election. But the fears were assuaged in the short-term, as the U.S. added 287,000 jobs for June, and while unemployment ticked up to 4.9%, it's still below what it was in April. The stock market blew up, with the Dow Jones rising 250 points, closing at its highest points of the year.

Unlike the stock market, I didn't see the jobs report as a sign that the economy was booming. Both the jobs and unemployment figures seem to be a reversion to the norm that we saw in the first part of 2016, and still going in the right direction. If you look at the Bureau of Labor Statistics' write-up on the revisions, you'll see how May and June's figures seem to balance each other out.
The change in total nonfarm payroll employment for April was revised from +123,000 to +144,000, and the change for May was revised from +38,000 to +11,000. With these revisions, employment gains in April and May combined were 6,000 less, on net, than previously reported. Over the past 3 months, job gains have averaged 147,000 per month.
What's interesting to note with those May revisions is that the private sector change was revised from +11,000 to DOWN 6,000. If that holds, then it would be the first month that private sector job growth declined in 6 1/2 years, the longest unbroken streak of job growth since they've been keeping the stats. But quite a bit of this "May down, June up" pattern seems to be seasonally-related where May hired less Summer workers than normal (or what the BLS thinks is normal), and June made up the difference. This seems particularly true if you look at the sectors that have a sizable amount of seasonal hires.

Non-seasonal vs seasonally-adjusted employment change
Leisure and Hospitality
Non-seasonal May +344,000, June +475,000
Seasonally adjusted May -3,000, June +59,000

Retail trade
Non-seasonal May +97,200, June +108,800
Seasonally-adjusted May +3,000, June +29,900

Non-seasonal May +17,000, June +18,000
Seasonally adjusted May -16,000, June +14,000

A notable exception to the "May down, June up" trend was health care services, which doesn't have much of a seasonal adjustment, and still added 47,600 jobs in May and 58,200 in June. It's been the largest sector of growth the last year, with nearly 600,000 jobs added since June 2015.

On the unemployment rate side, we see a similar story in reverse. May had a drop in unemployment from 5.0% to 4.7%, largely due to seasonally-adjusted drops in the work force, and June went back up by 0.2% with more people entering the work force. The BLS basically admits as much.
The unemployment rate increased by 0.2 percentage point to 4.9 percent in June, and the number of unemployed persons increased by 347,000 to 7.8 million. These increases largely offset declines in May and brought both measures back in line with levels that had prevailed from August 2015 to April.
As you dig inside the numbers, the amount of people identifying as "employed" didn't change much between the two months.

Unemployment rate stats, April-June 2016
Employed- May +26,000, June +67,000
Labor force- May -458,000, June +414,000
Unemployment rate May -0.3%, June +0.2%

So while the June jobs report does calm any concern about major job slowdowns, I also don't see it as proof as the economy kicking into a higher gear. In addition, the Brexit did not happen until after the June jobs report survey had occurred, so any effect of that (and the result rise in the dollar and plummeting of interest rates) won't be shown until next month. Along with those effects, I'll need to see where these figures go in July and August to get a better idea on where job growth is headed, as the pattern of 150,000 per month growth seems to be where we're at in this near full-employment scenario.

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