The July payroll report showed the economy added 209,000 jobs for the month. A number that close to economists’ forecast of a 230,000 jobs gain indicates it is in-line with expectations and the street shouldn’t really be disappointed, particularly as job gains for May were revised upwards to 298,000.
However, the lack of growth in the average earnings-hour is a negative since wage-inflation is required for general price levels to rise. The July unemployment rate ticked up to 6.2 percent from 6.1 percent the previous month. It went up possibly because of more people entering the labor force, and hence, should not be a matter of much concern.
It’s basically a goldilocks report in the sense that it’s on expectations, said Alan Krueger, a Princeton University professor of economics and former chairman of the White House Council of Economic Advisers. The uptick in unemployment rate is within the statistical margin of error and not a significant statistical movement. The increase in the labor participation rate was also not statistically significant. The slight gain in unemployment could be noise though it would be encouraging if more people came back to the labor force.
Similarly, even as the report shows total private-sector wages remained pretty flat, production non-supervisory workers wage went up two-tenths. It’s probably a good development if there’s a strong gain in production non-supervisory workers’ wages; it went up 2.3 percent over the past 12 months and is ahead of inflation, which is a positive because they were lagging for a long time, he explained.
According to Bill Gross of PIMCO, two-percent real growth since the Great Recession is nothing to brag about. Growth has fallen due to a yawning gap of aggregate demand relative to aggregate supply. Asked to comment, Alan said last quarter growth was four percent and the expectation for the rest of the year is three percent, which means there would be a gradual rise in economic activity.
Growth will be closer to three percent than two percent this year which is a positive for the economy. The longer that pace continues, the more the economy is going to overcome the problems created by the Great Recession. On employment front, the economy has added more than 200,000 jobs for six months in a row, an event not witnessed since 1997. So on the brighter side, a labor market recovery is underway, he argued.
Asked if the addition of more than 200,000 jobs for six straight months indicates significant under-utilization of labor resources and shows the Fed is right on the money, Peter Coy of BusinessWeek said the long-term nonfarm payroll trend shows the employment got back to where it was before the Great Recession just a couple of months ago. The labor force participation rate remains low, and there is a lot of room for growth on employment.
Alan said although there’s little doubt about the slack in labor market, the question remains how important is that slack to put downward pressure on wages. The long-term unemployed are possibly increasingly withdrawing from the labor force and are not putting that much pressure on the economy.
The Fed is likely to consider the latest nonfarm report to be consistent with its view that some workers are coming back, though it’s possibly a blip because it’s only a tenth of a point and is within the margin of error. That means the Fed is unlikely to change its current course and market reactions suggested this is kind of a Goldilocks report that helps maintain the status quo, he concluded.
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