Friday’s July employment report from the Bureau of Labor Statistics (BLS) was a second month of welcome change, with a 255,000 gain in nonfarm payroll jobs. Private payrolls gained 217,000 jobs. In the household survey, the unemployment rate remained unchanged at 4.9%, as the number of employed (+407,000) nearly matched the number of individuals entering the labor force (+420,000). The labor force participation rate ticked up 0.1 percentage point to 62.8%. In the establishment survey, nonfarm payroll job growth for May was revised up from +11,000 to +24,000 (final estimate). For June, it was revised from +287,000 to +292,000 (second estimate).

 

Source: BLS, BEA, Bloomberg Econoday

 

LABOR TRENDS FOR WORKERS, JOB SEEKERS AND FAMILIES

	The labor force participation rate remains subdued, even among prime-age workers Despite crawling up to 62.8% the past two months, the labor force participation rate remains significantly below the peak of the previous business cycle (December 2007) of 66.0% (a difference of 3.2 percentage points). The rate for 25-54 year olds is 81.2%. It’s down 1.9 percentage points compared to the peak of the last business cycle when it was at 83.1%.
	Specifically, labor force participation is down among Americans under 60 years old When broken down into five-year age cohorts, only workers age 60 and older have seen their participation increase since the start of the recovery. By comparison, workers age 59 and younger, particularly ages 16 to 19 and men ages 20 to 24, have seen their workforce participation decline significantly over the course of the recovery.
	Full-time employment remains subdued as a share of total employed The share of the employed that are working full-time is still more than a percentage point below pre-recession levels, even though the number of full-time jobs finally passed its pre-recession peak in August 2015. Part-time jobs jumped during the recession and remain elevated by nearly 3 million compared to pre-recession levels. As a share of the employed, part-time work is up 1.3 percentage points compared to its pre-recession level.
	Average monthly job growth in 2016 remains below its 2013, 2014, and 2015 numbers Thus far in 2016, the average monthly private-sector job growth rate in 2016 is the lowest since 2010. It would take nearly 5.5 million more private-sector payroll jobs added in the remainder of 2016 to close the growth gap in private-sector jobs between this recovery and the average post-1960 recovery, or nearly 1.1 million new jobs per month. Over the past 12 months, over 2.4 million nonfarm payroll jobs were added.
	Long-term unemployment remains elevated It takes a median 81 days for the jobless worker to find a job or leave the workforce. The average is worse—197 days. As a percent of the jobless, the share of long-term unemployed (27 weeks or more) remains elevated at 26.6% compared to its 40-year, pre-recession average of 14%.

THE BIGGER PICTURE

According to its survey of economists, the Wall Street Journal reports the number of new jobs needed to keep the unemployment rate unchanged is 145,000 per month. Currently, the three month moving average for the establishment payroll survey is 190,000. This is a welcome change compared to the preceding months’ moving averages of 153,000 (June) and 118,000 (May). We still have a long way to go.

• If the labor force participation rate that existed just before the previous recession (December 2007) is applied to the current population, it implies there should be 167.3 million Americans in the labor force. As of July 2016, the actual number is only 159.3 million. This implies that 8.0 million Americans are still on the sidelines.
• In addition, Q2 real GDP growth of 1.2% came in very disappointingly low. Economists forecasted 2.4% growth. This low growth trend does not bode well for employment, which tends to be a lagging indicator.

 

UNDERLYING DETAILS

Although the overall situation remains bleak, it is hoped that the results of this employment situation and the previous month’s represent the beginning of a stronger trend.

• The number of unemployed persons is unchanged at 7.8 million. Since August of last year, it’s been unchanged. In July, the number of persons unemployed less than 5 weeks decreased by 258,000. However, the number of long-term unemployed (those without jobs for 27 weeks or more) remained unchanged at 2.0 million and accounts for 26.6% of the unemployed.
• The BLS reports job gains occurred in professional and business services (+70,000), health care (+43,000), and financial activities (+18,000), while mining continued its downward trend (-6,000). The latter, since reaching a peak in September 2014, has declined by 220,000 (26%) as of July 2016.
• In July, there were 591,000 discouraged workers (persons not looking for jobs because they perceive none are available for them). This is about the same from a year earlier.
• ADP’s National Employment Report estimates that private-sector employment increased 179,000 in July, with 185,000 jobs created in the service sector, while 6,000 jobs were lost by the goods-producing sector. Within the service sector, professional and business jobs led the increase with 59,000 new jobs. In the goods producing sector, construction jobs fell by 6,000 while manufacturing increased by 4,000 jobs. ADP’s employment numbers, though useful, are not necessarily a reliable predictor for actual payroll jobs numbers released by the BLS.

The next BLS employment situation report for initial August employment numbers and revisions for June and July data are scheduled for release on Friday, September 2, 2016, at 8:30 a.m. ET.