What the new jobs report means — and doesn’t
The Bureau of Labor Statistics (BLS) reported that the economy added 224,000 jobs in June, continuing the yo-yo trend in employment growth. It’s a reminder not to read too much into a single jobs report.
What was surprising in this report was not the June rebound in job growth, but rather that the rebound surprised so many analysts. Monthly employment job numbers are notoriously volatile. Ten of the last twelve months have seen the month-to-month change in job gains increase or decrease by more than 75,000 jobs.
While the conversation will now undoubtedly focus mostly on what this means for the future policies of the Federal Reserve, making broad pronouncements regarding the implications for Fed policy based on one month’s jobs report gives too much credence to one month’s report at the expense of the trend. Trend, meanwhile, is straightforward: 2019 job growth is lower than 2018, but it remains healthy.
Despite this, equity markets initially reacted to this single report to the downside as they are now oddly prioritizing a Fed rate cut over signs of strength in the job market. Conversely, fixed income markets pulled back, shooting yields to above 2 percent as investors dialed back their previously irrational certainty that an immediate Fed rate cut was inevitable.
Equity markets especially seem to be having difficulty reconciling the reality that job growth in 2019 is lower than it was in 2018 and remains a very respectable 172,000 to date this year.
Wage growth continued to disappoint, increasing by 3.1 percent after peaking at 3.4 percent in February. The end of 2018 and beginning of 2019 showed promise for an ongoing acceleration in wage growth as growth increased from 2.8 percent in July 2018 to 3.3 percent by the end of 2018.
Despite this positive trend, wage growth moderated somewhat in 2019 and has plateaued around 3 percent for now. Reconciling sub-4 percent unemployment and current wage growth levels remains one of the most puzzling aspects of the current labor market.
Despite the slight uptick in June to 3.7 percent from May’s 3.6 percent, the unemployment rate remains at historically low levels and down 30 basis points from the beginning of the year.
Importantly, the moderate uptick reflected the positive, albeit slight, increase in the labor force participation rate. An increase in the labor force participation rate indicates that potential workers are coming off the sidelines and reentering the labor market.
Overall, this should have been a reassuring read on the state of the economy, allaying the fears generated by May’s significant drop in job gains. But rather than generating a collective sigh of relief, equity markets, at least early on, went into a state of renewed angst over the possibility that their hoped-for Fed rate cut would be indefinitely delayed.
Put this one in the odd but true category. And remember that when it comes to the labor market, a single data point doesn’t make a trend, though it can make for dramatic headlines and market overreactions.
Chris Macke is the author of “Solutionomics.” He is a contributor to the Fed Beige Book. Find him on Twitter: @solutionomics.
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