Today’s report on the labor market shows continued improvement, but not quite as much as the consensus expected.
Nonfarm payrolls increased a solid 223,000 in June, close to the average of 245,000 in the past year. Meanwhile, the jobless rate fell to 5.3 percent, the lowest since early 2008 and very close to the roughly 5.1 percent the Federal Reserve thinks is the long-run average.
However, the details of the report were weaker than the headlines. The drop in the unemployment rate was due to a 432,000 decline in the labor force as the participation rate fell to 62.6 percent, the lowest since 1977. Civilian employment, an alternative measure of jobs that includes small business start-ups, declined 56,000.
Although certainly not good news, don’t overreact to this month’s negative news on civilian employment or the size of the labor force. These figures are volatile from month to month, have both been trending up in the past year. In other words, don’t lose sight of the fact that this is the 64th month in a row with growth in private payrolls, the longest streak since at least the late 1930s.
Other details in today’s report were mixed. The good news was that the median duration of unemployment fell to 11.3 weeks, the lowest so far in the recovery. To put this in perspective, the median duration was 17.0 weeks at the end of 2013, which shows what a difference it made when Congress ended extended unemployment benefits at the beginning of 2014.
The weak news was that average hourly earnings were unchanged in June and are up a tepid 2 percent in the past year. However, combined with increases in hours worked, workers’ total cash earnings are up 4.4 percent versus a year ago, more than enough for consumers to increase their spending.
In other news this morning, new claims for unemployment benefits increased 10,000 to 281,000, the 17th straight week below 300,000. Continuing claims rose 15,000 to 2.26 million. These figures are consistent with continued payroll growth north of 200,000 per month.