Decent US jobs report on the surface, but some troubles bubbling underneath

With the recent slowdowns being seen in the goods-producing sectors and an indication from Fed Reserve Chair Powell that further rate cuts might be delayed if the economy continues to grow at a decent pace, it raised the stakes a bit for Friday’s US jobs report.

Well, it seemed to be OK on the surface – decent job growth, decent wage growth, and unemployment staying low.

The US economy added 164,000 jobs in July, in line with expectations and the rate of growth over the last quarter. That's a healthy number, considering the economy has been expanding for more than a decade.

The unemployment rate remained at 3.7%, which marks the 17th straight month that it's been at or below 4.0%.

The pace of hiring has slowed to an average of 140,000 new jobs per month over the past three months, down from a 187,000-per-month rate over the past year. The report matched forecasts exactly.

"After an acceleration in 2018, job growth in 2019 is somewhat slower but still solid," Gus Faucher, chief economist for PNC Financial Services, wrote in a note to clients. "A tight labor market that is making it difficult to find workers; reduced fiscal stimulus, trade tensions, slower global growth, and business uncertainty are all weighing on the labor market."

Mixed bag, but steady and respectable growth, especially since the labor force in the household survey grew by a seasonally-adjusted 370,000 in July, and 283,000 more people were listed as “employed” in the same survey, which would indicate there is still room for growth despite the tight labor market.

But then you dig into the report itself, and it’s not so sanguine. Part of that is because there were significant downward revisions to the last 2 months.

The change in total nonfarm payroll employment for May was revised down by 10,000 from +72,000 to +62,000, and the change for June was revised down by 31,000 from +224,000 to +193,000. With these revisions, employment gains in May and June combined were 41,000 less than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.) After revisions, job gains have averaged +140,000 per month over the last 3 months.

Oh, so we really only are 123,000 jobs above where we thought we were. In addition the average job growth over the last 6 months is also at 140,000, which doesn’t seem bad, but it’s actually the lowest 6-month growth level since October 2012, and shows that the juiced-up 2018 increase in job growth has faded.

And while overall wage growth was good in general, much of that didn’t go to everyday workers. Combined with a shorter work week, it meant that many people might not have seen bigger paychecks last month.

In July, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $27.98, following an 8-cent gain in June. Over the past 12 months, average hourly earnings have increased by 3.2 percent. In July, average hourly earnings of private-sector production and nonsupervisory employees rose by 4 cents to $23.46. (See tables B-3 and B-8.)

The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in July. In manufacturing, the average workweek decreased by 0.3 hour to 40.4 hours, and overtime declined by 0.2 hour to 3.2 hours. The average workweek of private-sector production and nonsupervisory employees declined by 0.1 hour to 33.5 hours.

And while construction and manufacturing jobs continued to increase, it was at a slower rate than we saw in 2017 and 2018. Both construction and manufacturing also had lower average weekly hours in July, and combined with lower wage growth than the US at large, the gain in weekly wages over the last 12 months in those areas is miniscule.

Change in average weekly wages July 2018-July 2019
All private sector jobs +2.61%
Construction +1.99%
Manufacturing +0.98%

The biggest gainers for weekly wages over the last year? Higher-paid industries Information (+6.84%), and Financial Activities (+4.01%). Tech bros, house flippers, and hedge funders, in other words. Party like it’s 1999 and/or 2007, folks!

That unevenness in job and wage growth is why I think anyone trying to sell mid-2019 as a boom time is off-base. It seems that the economy has downshifted into slower growth (at best) in many areas, and it might only take one other bit of trouble to speed the slide into something worse. Stay tuned.