Job Report Shows Continued Improvement, but Labor Market Has a Long Way to Go Before It’s Healed

The Plow Horse Economy is showing Plow Horse improvement in the labor market as well. There was nothing great about this month’s report, but nothing awful either.

Payrolls grew 209,000 in July, the sixth straight month above 200,000, the first time that’s happened since 1997. And although the unemployment rate ticked up to 6.2 percent, the increase was due to a 131,000 gain in civilian employment, an alternative measure of jobs that includes small business start-ups, while the labor force rose 329,000. As a result, the labor-force participation rate ticked up slightly to 62.9 percent. The aging of the Baby Boomers will keep putting downward pressure on the participation rate but, even so, we expect that rate to remain roughly flat to slightly up in the next year as improvement in job opportunities temporarily offsets population aging.

The worst piece of news in today’s report was that average hourly earnings were unchanged in July. However, these wages are still up 2 percent from a year ago, while total hours worked are up 2.4 percent. As a result, total cash earnings are up 4.5 percent from a year ago, more than enough for consumers to keep increasing spending.

Part-time employment was up again, by 52,000 in July, and we’re sure pessimistic analysts will again (unduly) highlight this figure. But these data come from the civilian employment survey and are extremely volatile from month to month. So, despite recent gains, part-time employment is down 114,000 in the past year.

Given the recent policy statement from the Federal Reserve, Chairman Yellen will probably breath a small sigh of relief after today’s numbers. The report continues to show improvement in the labor market, which the Fed acknowledges. But the small increase in the headline unemployment rate makes that rate a little more consistent with the Fed’s concern that the job market still has much further to go before being fully healed.

In the past year, nonfarm payrolls are up 214,000 per month while civilian employment is up 172,000 per month. We expect the civilian employment data to accelerate in the year ahead as payrolls continue to show healthy gains.