Beyond The US Jobs Headline Signals Big Trouble Ahead
Friday’s report of the rise in job creation and higher wages in May triggered talk the United States is now entering a “Sweet Spot” that would drive the Fed closer to a long-awaited rate hike.
Behind the headlines the data showed a troubling picture that the long-term unemployed and discouraged workers were still being left behind, a Key concern that has been repeatedly highlighted by Federal Reserve Chairwoman Janet Yellen.
Friday’s data showed the United States added 280,000 jobs in May Vs expectations for 225,000 and that wage growth nudged up to 2.3% from a year earlier, prompting markets to start betting on an October rate hike compared with December.
Despite the surge in new jobs, the headline unemployment rate rose to 5.5% as more people entered the labor force, showing the economy is still not creating enough work on a sustainable basis.
The jobs that were created for the most part remain in the lower-paid end of the service sector, restaurants, leisure and retail and wage gains were primarily concentrated in managerial jobs. For non-supervisory jobs the pace of paycheck growth was 2.0% Y-Y in May.
The Washington Center for Equitable Growth calculates that “healthy” nominal wage growth of 3.5% will only be achieved when the prime age employment ratio hits 79% for 6 months Vs the current 77.2%. It says that metric will not be hit until September 2017.
The number of people working part time who wanted to work full time ticked up in May to 6.7-M from 6.6-M and the labor force participation rate is stuck around 62.9%, indicating the economic recovery is not complete.
The U-6 unemployment rate, a broad measure that includes unemployed, those working part time, but who say they want full-time work and those marginally attached to the labor force, was stuck at 10.8%. The number of people unemployed for 27 weeks or more was at 2.502-M, the lowest since late Y 2008, but well above marks seen before the Y’s 2007-2009 Great Recession.
Now, get this please, close to 93-M people were not participating in the workforce. May’s total represented decline compared to last month’s record, which saw 93.19-M people outside the workforce.
The BLS defines those not in the labor force as people ages 16 and older who are neither employed nor “made specific efforts to find employment sometime during the four-week period ending with the reference week,” according to a recent report.
The concern that the labor market is not fully healed is one that has been repeatedly highlighted by the Fed’s Ms. Yellen who said recently that the swollen part-time numbers showed “labor market slack.”
More recently, a number of Fed rate setters have come out and warned over economic data. In Q-1 the US economy shrank 0.7% and the Q-2 recovery has been tepid so far as consumers have not responded to lower gasoline prices by spending their money on other things.
“Even though job growth was solid, it needs to be sustained over a longer period of time in order to significantly tighten the labor market to the point where we finally see significant wage growth,” wrote an economist at the Economic Policy Institute, a left-leaning Washington think tank.
Have a terrific weekend
HeffX-LTN
Paul Ebeling
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