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Patrick J. O’Keefe Shares Expectations for July 2015 Jobs Report


8/3/15

On Friday, August 7, the Bureau of Labor Statistics (BLS) will release data on labor market conditions in the United States through July 2015.

We expect the BLS to report that in July:

  • Total employment increased by 225,000 jobs, all in the private sector;
  • Average hourly earnings rose modestly; and
  • The primary labor force gauges (participation, unemployment, and jobholding) were little changed.


View accompanying chartbook.

Background – Employment [Charts 1-29]

The BLS is expected to report that the private sector jobs count rose for the 65th consecutive month, extending the longest uninterrupted string of monthly gains on records from 1939.

The expansion in total nonfarm employment most likely reached 58 consecutive months in July. Its start lagged the private sector’s largely because of the gyrations in Federal jobs due to temporary Census staffing in 2010.

July’s data should confirm that jobs growth has accelerated from the soft-patch earlier this year. But despite its recent improvement, the jobs market has not regained 2014’s pace, which produced the largest annual jobs gain since 1999.

Through the first half of 2015, the economy has added 1.3 million jobs, considerably less (12.5%) than 2014’s comparable period.

While employers may be hiring less robustly than last year, they are clearly less inclined to see employees off. Applications for unemployment benefits, a proxy for layoffs, have been persistently low. Except for a few weeks earlier this year, filings in July were at levels last seen in Y2K.

Total employment reached a record 141.8 million in June; of those jobs, 119.9 million were provided by private employers and 21.9 million by government agencies.

As has been the case since the jobs recovery began in March 2010, the growth has been unevenly distributed. While private employment is at an all-time high, government employment is almost one-half million below in January 2008 peak.

And within the private sector, growth has been concentrated among private service providers whose job count is 6.3 million greater than prior to the recession. Within the services sector, almost one-half (46.7%) of those gains were contributed by just three industries (viz., Business Services, Leisure/Hospitality, and Healthcare).

Goods producers, on the other hand, have 2.4 million fewer jobs than at the start of 2008. Manufacturing employment is down by almost 1.4 million (-10.1%); construction’s ullage is 1.1 million jobs (-14.1%). Although employment in the extraction industries (drilling, logging, and mining) exceeds pre-recession levels, its net gain has been eroded by energy cutbacks.

Background – Labor Force [Charts 30-41]

The employment data discussed above are based on a survey of employers. The data discussed below focus on the labor market status of residents and are derived from a survey of households. The labor force is comprised of all non-institutionalized civilians, 16 years or older, who are either jobholders or jobseekers (i.e., those who have actively sought work in the prior four weeks).

The labor force participation rate (LFPR), the share of the work-age population that has or is seeking paid employment, peaked at 67.3% in early 2000 and then drifted downward on shifting demographic trends to reach 66.0% at 2007’s end. After its decline accelerated during the recession, it fell to a 36-year low (62.8%) late in 2013 and has since averaged 62.9%.

Increasing retirement by Boomers has been a key factor in the LFPR’s decline. But while their withdrawal had been anticipated, the pronounced drops among youth and prime-work-age adults were not foreseen and, should they persist, will have significant impacts on the economy’s growth and the nation’s fiscal and monetary policies.

In June, the LFPR dropped to 62.6%, the lowest rate in almost 38 years (since October 1977), with declines in both the number of jobholders (down 56,000 from the prior month and jobseekers (down 375,000 month-on-month).

The unemployment rate fell to the lowest percentage (5.3%) since April 2008, early in the recession. But the month’s decline occurred because jobseekers quit looking for employment, not because they found it.

We expect BLS to report that the number of unemployed dropped to 8.1 million in July but that the unemployment rate was unchanged at 5.3%.

Before slipping modestly in June, the number of jobholders (i.e., individuals with jobs) had generally increased since the start of 2013 (up 27 of 30 months). But while June’s decrement was small (56,000), it was sufficient to cause the employment rate (i.e., the share of the work-age population with jobs) to retreat from May’s best reading since mid-2009.

We look for June’s data to show that the number of jobholders increased by approximately 200,000 – to 148.9 million.

Underemployment (i.e., those involuntarily working part time) has declined gradually, albeit erratically, from its March 2010 peak, when it exceeded 9.1 million workers. Over the past year, as the pace of the decline picked-up, the number of underemployed fell to 6.4 million – almost one-third (-30.0%) below the recessionary peak.

Although the reduction in underemployment is welcome, the improvement is far from complete. In the five years (2003-2007) prior to the recession, the underemployed comprised 3.1% of all jobholders. It reached 6.6% in March 2010.

In June, 6.4 million workers were in involuntary part-time jobs; that was 4.3% of all jobholders.

June’s data also showed that:

  • Long-term unemployment dropped sharply (-15.3%) in June, reaching the lowest count since September 2008;
  • The number of discouraged jobseekers rose by approximately 90,000 from May’s lowest level since late 2008.
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