There was a lot of important information on the U.S. economy released this week but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America jumped by 255K payrolls in July, much better than the +185K consensus estimate and the 2nd-largest monthly increase this year. There were upward revisions to both the June and May figures, which altogether helped lift the 3-month (less-volatile) average payrolls gain to +190K, well above many Federal Reserve officials’ estimates for the pace of job creation in America needed to keep up with population growth. The household survey was even more encouraging, showing that employment expanded by 420K payrolls last month, and July’s solid headline gain was the 70th consecutive month of net job creation in this country, the longest such string in U.S. history.
As for joblessness, the official unemployment rate (U-3) held steady at 4.9 percent in July, and the underemployment rate (U-6) edged higher to 9.7 percent. The lack of a decline in the jobless rate in the face of a strong monthly payrolls gain was due largely to an uptick in the labor force participation rate, which rose to 62.8 percent in July. A big factor behind this is more people reentering the workforce due to increased optimism about their employment prospects. Some of the improvement, though, was simply due to a rebound in participation among adults with less than a high school diploma, and July was an overall solid month for low-end/entry-level job growth.
More importantly, the percentage of all Americans ages 25-44 who were working in July finally returned to pre-recession levels, and over the last 12 months more unemployed people found work than dropped out of the labor force. Those are two significant milestones for the recovery that also hint at tightening labor markets, which can put upward pressure on wages. Evidence of this can be seen in average hourly earnings for production and nonsupervisory workers having climbed by 2.57 percent over the past 12 months, one of the fastest rates of annual growth seen during this business cycle. While there is clearly a lot of room left for improvement, this was still another positive report on the employment situation in America that is going to make it even harder for officials at the Federal Reserve to justify keeping interest rates at historically low levels.
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. DoL, FRBSLPost author: Charles Couch