June Jobs Report: strong U.S. market with weak wages

Friday mornings release of the June Jobs Report by the U.S. Bureau of Labor Statistics gave support to many that the U.S. economy is strong, even with the slight uptick of the unemployment rate by a point; but seeing that 213,000 jobs were added, pleases many economists, and academics, and exceeded payroll processor ADP’s prediction of 177,000, but ahead of the 195,000 that was predicted from BLS.

This is the 92nd straight month, beginning in October of 2010 with the Obama administration, of straight gains, for the nation.

Then there is the still weak news about wages, as we have consistently seen -- this time we saw that the average hourly wage has risen by 0.2 percent, and only 0.3 percent from May of this year.

The mere fact that this is still a problem in an otherwise strong report makes for another head-scratcher among economists, whose knowledge shows that the inverse relationship between the two figures belies all of the rules of macroeconomics.

Offering a glimmer of hope is that labor force participation increased -- but without a gain in wages 211,00 -  the question begging to be asked is why, or more importantly, why is this such a persistent problem?

With hiring so far ahead of growth it has turned conventional economic theory on its head, once again.

Last month we showed that some observers felt that wage increases were only given to those than changed jobs,  and not those that stayed in place. And, this theory may still be holding.

Mark Hamrick, Bankrate.com senior economic analyst says "I think typically, the easiest way to get a wage increase is to just change jobs," he says. "Most workers do not have much bargaining power with their current employer, because they've already got you."

The increase of 600,00 people joining the workforce was good news for some, especially considering that, of those that did get jobs, three-quarters of them were from the ranks of the unemployed.

“I’m really excited to see that the labor force is growing,” said Catherine Barrera, chief economist of the online job site ZipRecruiter, in an interview with The New York Times.

“The number of Americans working part time because of their inability to find a full-time position fell — as did the number of those too discouraged to bother searching,” and while the increase in the jobless rate increased to 4 percent, “Ms. Barrera was unruffled, saying ‘there were some people who weren’t participating in the labor force who are now being encouraged to return.’”

“The number of long-term unemployed (those jobless for 27 weeks or more) increased by 289, 000,” BLS also stated.

Earlier this year, there was some fear that the economy might overheat, but now those fears have been allayed by the June numbers.

“This should take a little bit of pressure off the Federal Reserve to step up the pace of tightening,” said Jim O’Sullivan, chief economist of High Frequency Economics, reported the Times with his remarks, with some also “referring to the debate over how quickly to raise benchmark interest rates,” but some are saying that with no strong changes in place, that they will continue as planned,

There have been as usual, gains and losses, with the strongest areas being, once again in professional and business services, showing an increase to 50,000 in June, with overall strength showing 521,000 over the year. But, as always we offer the cautionary note that this is a catchall category, which can hold temporary office workers as well as accountants, so it’s tough to tease out the particulars, and begin the applause.

Construction workers saw an increase of 13,000 in June with annual gains of 282,000 over the year; an important figure with the changes in supply management, that looked grim, for some.

“Health-care payrolls jumped 25,000 for the month, increasing by a total of 309,000 for the year,” but this is also another catch-all label that could include everything from registered nurses,

Most significantly is that retailers lost 22,000 jobs last month after a gain of 25,000 in May, but with the continued rise of online shopping and the closing of some Sears stores, plus that of the iconic Toys R Us, this figure is not entirely unexpected.

New jobless claims are at an all-time low, and some consumers, as the Times reported, treated themselves to a new car, pleasing Detroit automakers.

All of this good news is tempered by the beginning of the trade war that President Trump has begun with the increase in tariffs, this Friday, against China, in steel and other products.

The Times was not shy about stating that “Anxieties over the fallout from a trade war, however, continue to cast shadows as $34 billion in additional tariffs on China went into effect on Friday, and the Chinese vowed to retaliate. “They’re playing with fire, really,” Mr. O’Sullivan said of the Trump administration’s trade policies. While welcoming the positive labor report, he nonetheless noted that “we could do with a scare in these numbers to force trade negotiations along.”

Most of the effect, say some, would be on manufacturing employees and working families, as we are beginning to see already with the Harley Davidson move to Europe to increase their share of that market and others.

Bloomberg news did say that “While analysts say June is too early to see significant fallout from trade tensions in the employment data, such forces are starting to emerge as a possible counterweight to the tax cuts buoying corporate investment and consumer spending -- and boosting a labor market that’s shown little sign of slowing. Yet anecdotal worries are mounting, with a U.S. factory survey on Monday showing executives “overwhelmingly concerned” about tariffs and two regional Federal Reserve presidents warning last week that a trade war is increasingly weighing on businesses and adding risks to the outlook.”

“For now, the underlying fundamentals are strong enough and the stimulus the economy is receiving from fiscal policy is large enough to outweigh the uncertainty from protectionism,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York.”

Still problematic are the dearth of qualified workers to fill slots that some employers so desperately needed, say some employers, but despite some success in that area, employers have had to do somersaults in sign-on benefits, and salaries for some; but baby boomers still seem loathe to leave their self-imposed exile, and  join the workforce, once more.

Some big box stores such as Target set higher wage to lure some out of the woodwork, along with their grandchildren, but he result have been spotty,

Last month we reported this: “Looking at one often overlooked area is Diane Swonk, an economist with Grant Thornton, who is “watching teenage unemployment, which was 12.8 percent last month. In April, the rate stood at 12.9 percent, down from 14.7 percent in April 2017.” in her conversation with the Times.”

“Employers surveyed by Vistage survey last month said they are increasing pay, sweetening benefits packages and trying to create an appealing work culture to retain workers as well as attract new ones — including candidates not previously looking.

“As a result of this shortage, Hamrick says many firms will have to get more aggressive with training and sourcing their own workers. For recent grads and job seekers, this could be good news, as employers may be forced to hire and provide training to someone who may not ordinarily be qualified for the job. He adds that since many of the industries impacted by this gap rely heavily on an acquired skill, young professionals today should broaden their scope on the educational requirements they think are needed for employment.”

"It will be wonderful if young people take a wider view of the job market and not only associate it with jobs that come by virtue of a college degree, but also by learning a new skill," explains Hamrick.

Still, as this latest jobs report shows, the lengthening list of help-wanted postings has had only a modest effect on hourly earnings. Several employees said their reluctance to raise prices limited the wages they could offer.”

Even more so, says the Times, “despite the demand for workers, many of the available jobs, particularly in lower-wage sectors, are short on appeal. Many employers limit hours to avoid paying benefits like health insurance. Work shifts frequently change with little notice, and wage increases are still insufficient to cover living costs. Stability and security are often scarce.”

The last several reports reveal a different world and a different attitude as Hamrick and others have outlined, but the trade policies and tariffs of Trump have the great capacity to complicate the jobs market and the national economy even more, and not for the better, making what was once a  routine pulse taking of the jobs market, into a cause for an increase in blood pressure.