Robust June 2019 Jobs Report Creates Question on Fed Rate Cut Timing

The U.S. just entered a record-shattering 11th year of economic expansion.  The economy added 224,000 net new jobs in June 2019 (preliminary) far exceeding the expectation of 150,000 new jobs by economists polled by MarketWatch.   Job growth was at 1.54 percent, 8 percent greater than the 40-year compound annual growth rate.  The unemployment rate feathered up from 3.6 percent to 3.7 percent as 300,000 net new additional people entered the workforce.   Despite that miss, the U.S. unemployment rate remained near 50-year lows.

The following graph shows the total U.S. Civilian employment numbers monthly since 2007 on a seasonally adjusted basis as reported the U.S. Bureau of Labor Statistics.

The following graph shows the total job gains for the prior 12-months.   Note the two lines (hand drawn not statistically modeled) showing the trends in job growth commencing from 2015 through 2017 and then for 2018.  The job growth rate from 2015 to the end of 2017, while still positive, essentially diminished, but turned upwards in 2018. Growth in 2018 was very strong, but faltered in 2019.  Many economists believe that the drop in 2019 is from the lack of skilled, readily available workers to hire.

The unemployment rate varies significantly by level of education attainment, with each level having improved from a year ago.  The following table shows the unemployment rates for June 2018 and June 2019 by education.  For some segments unemployment rates are the lowest ever recorded.  Overall, other than a few months this year, unemployment is the lowest in 50 years.

Employment in the Leisure and Hospitality sector (in my opinion) has been an excellent proxy of the overall health index of the U.S. economy.  People do not spend money on vacations, cruises, entertainment, spas or dinners out unless they feel good about the future economy.  My premise is that the U.S. economic outlook is healthy as long as the employment growth rate in Leisure and Hospitality matches or exceeds that of the country overall.  Current Leisure and Hospitality job growth in the prior 12 months was 2.26 percent versus 1.54 percent for the total economy.  I see no recession on the horizon at this time foregoing unanticipated economic shocks given strong growth in leisure and hospitality employment.

 

Other items in the June 2019 jobs report:

  • Number of Persons Unemployed for Less Than 5 Weeks dropped by 186,000 from a month ago, and is now at 1.961 million versus 2.281 million a year ago (down 257,000)
  • Long-Term Unemployed (jobless for 27 or more weeks), now at 1.414 million versus 1.467 million a year ago, was up 116,000 from May
  • Civilian Labor Force Participation Rate at 62.9 percent is flat from a year ago
  • Unemployment The number of unemployed people dropped from 6.537 million in June 2018 to 5.975 million this June – a drop of 562,000 (8.6 percent)
  • Employment-Population Ratio is now 60.6 percent versus 60.4 percent a year ago – the bigger the better
  • Number of Persons Employed Part Time for Economic Reasons(also known as involuntary part-time workers) are individuals desiring full-time employment but either had their hours cut back or cannot find a full-time job), declined by 8,000 from the prior month and is down to 4.347 million compared to 4.736  million a year ago
  • Marginally Attached to the Labor Force (not currently counted in the labor force, want and are available for work and had looked for a job in the prior 12 months) now at 1.571 million was at 1.437 million a year ago.  Within that group, 425,000 were classified as Discouraged Workers – persons not currently looking for work because they believe there are no jobs available for them.  Discouraged Workers rose by 66,000 in the past 12 months to 425,000

The next table shows the job change (in thousands) for Employment Super Sectors.    For example, manufacturing added 160,000 net new jobs in the past 12-months (678,000 in the prior 60 months) and made up 8.5 percent of all jobs.  Although the Mining and Logging Supersector (which includes oil and gas) posted a 3.1 percent increase in the past 12-months, the category made up just 0.51 percent of all U.S. jobs.

To read the entire latest news release on U.S. employment click https://www.bls.gov/news.release/pdf/empsit.pdf

The job growth rate is no doubt being constrained by the lack of available workers.   I reiterate my expectation for an ongoing increase in the hourly compensation rate given the lack of skilled workers to fill available positions.

There is a downside to this report in that job growth was strong enough to likely delay the Fed from cutting interest rates this summer.  That, however, is not a bad problem to have.

Ted

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