The Corner

With the Jobs Report, Fireworks Come Early

Looks like the labor market started its fireworks a little early. Payrolls grew 288,000 in June, the fifth straight month above 200,000. So far this year, payrolls have grown 231,000 per month, the fastest first half since 1999. 

The other good news was the decline in the unemployment rate to 6.1 percent, the lowest since September 2008. To put this in perspective, the Federal Reserve’s most recent economic forecast had the jobless rate at 6.1 percent near the end of the year, not the middle. The primary reason for the decline in the unemployment rate was a 407,000 gain in civilian employment, an alternative measure of jobs that includes small business start-ups.

One note of caution, however, is that the labor force only increased 81,000 in June and is down 128,000 from a year ago. As a result, the labor-force-participation rate remains mired at 62.8 percent, tied for the lowest since 1978.

The long-term downward trend in participation since 2000 is tied to the aging of the Baby Boom generation. But the end of extended unemployment insurance at the start of the year is also having an impact. Extended benefits kept some people from working and also kept others, who really didn’t intend to work, in the labor force (so they could keep getting benefits). The end of extended benefits should push down the jobless rate by both encouraging work among those who really want work and discouraging participation among those who really don’t. And, since the start of the year, we’ve had both faster payroll growth and a decline in the participation rate. Further supporting the case that ending extended benefits has helped: So far this year the median duration of unemployment has dropped to 13.1 weeks from 17.1 weeks, the steepest drop for any six months on record.

It’s hard to see the Fed not becoming more hawkish (or at least less dovish) after today’s report. The share of voluntary job leavers among the unemployed increased to 9 percent, the highest level since 2008. In the past, Fed chairman Janet Yellen has said a higher share of leavers shows confidence in the labor market.

Meanwhile, total hours worked and average hourly earnings were again up 0.2 percent each in June. Combined, this measure of total cash wages is up 4.1 percent in the past year, more than enough to fuel continued increases in consumer spending. In the past year nonfarm payrolls have grown at an average monthly rate of 208,000 while civilian employment is up 179,000 per month. Look for more solid jobs reports in the months ahead.

Robert Stein is an economist for an asset-management firm and a former deputy assistant Treasury secretary for macroeconomic analysis.

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