The job creation numbers for June are out showing that the US economy produced 222,000 more of them. At the same time the unemployment rate actually ticked up to 4.4%. It's the combination of these two things which shows that the US economy still has more room to grow. We can also add in the third economic number from today, relatively modest wage growth--that just adds to the power of the story. The economy is doing fine but it's not booming and we're not seeing, as yet at least, any sign of pressures which would make us think that it's going to stop doing just fine.
It's all actually slightly boring, news is what is unusual after all, not what has been standard for a few years now. Then again, "interesting economic times" is more of a curse than a blessing.
U.S. employers picked up their pace of hiring in June, evidence of sustained economic momentum heading into the second half of the year.
June nonfarm payrolls rose by a seasonally adjusted 222,000 from the prior month, the Labor Department said Friday.
The numbers in a nutshell:
222,000 jobs were added last month. Wall Street economists had expected employment gains of 175,000.
• The unemployment rate was 4.4 percent. May’s jobless rate was 4.3 percent.
• The average hourly wage grew by 2.5 percent from a year earlier.
• The labor-force participation rate inched up to 62.8 percent, from 62.7 percent.
The full report is here.
In June, the unemployment rate, at 4.4 percent, and the number of unemployed persons,
number of unemployed are down by 0.4 percentage point and 658,000, respectively.
at 7.0 million, were little changed. Since January, the unemployment rate and the
At which point a little thumbnail sketch of what we're worried about in the US labour market. Traditionally the US has had very little long term unemployment. Sure, the general rate rose in recessions, fell in the booms, but there has always been a difference with the European labour markets as my old professor, Richard Layard, points out:
The evidence for the first proposition is everywhere around us. For example, Europe
has a notorious unemployment problem. But if you break down unemployment into short term
(under a year) and long-term, you find that short-term unemployment is almost the same
in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4%
who have been out of work for over a year, compared with almost none in the United States.
The most obvious explanation for this is that in the U.S. unemployment benefits run out after
6 months, while in most of Europe they continue for many years or indefinitely.
That is how it used to be however. More recent experience is more similar. It wasn't in fact the depth of the recent recession which was so bad on this front, it was the length of time it lasted. That led to many more Americans than usual experiencing long term unemployment. One of the things we know about this being that when someone's out of work for more than a year, certainly 24 months, it's very difficult for them to get back into it. Employers tend not to hire them, some may have adapted or been sufficiently discouraged not to even look and so on.
So, we've all been looking at the labour force participation rate, showing us how many people just aren't even interested. Then the wider measures of unemployment, like U 6 (the one quoted above is U 3), those who are on the fringes of work but not trying all that hard, then this standard one of people out there job hunting but not finding one. We're wondering how much of this fall in the participation rate can be moved over into actively hunting and thus, hopefully, into an actual job.
That's one way to look at all these numbers. Another way to grasp much the same point is to look at wage growth. If that starts rising strongly then we'd conclude that either employers just can't get any of those discouraged back into work, or that they don't want them because of skills deterioration or some such.
So, either strong wage growth, or a fall in the unemployment rate as we keep adding jobs, but no rise in the participation rate, that would be telling us that we've got about as far as we can. Pretty much everyone who is going to get back into the labour force is there and thus there's no great pool of unused labour we can continue to expand the economy with.
Note that somewhere in the 3 - 4.5% range, we don't know where, is full employment if we're not able to pull more people in. Just because it takes time to find a job, takes time to get hired, there will always be some level of frictional unemployment.
So, look again at these numbers. We're creating jobs, that's great. But the unemployment rate has ticked up, as has the participation rate. That means the jobs market is still sucking in those near entirely disassociated from work. We've still got room to go, we can still grow the economy by increasing the inputs, that labour. That wage growth is subdued (it really is lower than we would expect at this unemployment rate if we look only at U 3) indicates this is a good bet too.
And that's why the US economy still has room to grow. If jobs are up, the unemployment rate is up, wage growth is subdued and labour force participation rising then we're still pulling the discouraged into work and not facing labour shortages.
