July Jobs Report Misses Views: New Entrants Decreased, Again

The Labor Department’s July jobs report found the U.S. economy added 215,000 jobs in July, 8,000 jobs below the 223,000 median economists forecast. The headline job creation numbers are decent enough that it will fuel growing speculation that the Federal Reserve will start raising interest rates in September.

The headline unemployment rate was 5.3 percent last month, unchanged from June but inline with economists’ expectations. The civilian labor force participation rate was unchanged at 62.6 percent, after falling by 0.3 percentage point in June to another 37-year low. The employment-population ratio, which is less cited than the participation rate but even more important, stood at 59.3 percent, also unchanged in July. It has shown little to no movement thus far the entire year.

Among the unemployed, the number of new entrants — those who have never previously worked — decreased by 107,000 in July. Further, the number of long-term unemployed — or, those jobless for 27 weeks or more, and account for 26.9 percent of unemployed Americans — was again unchanged at 2.2 million.

The number of persons employed part-time for economic reasons — who are sometimes referred to as involuntary part-time workers — was also sideways in July at 6.3 million. These Americans would have preferred full-time employment, but were working part time because their hours had been cut back or because they were unable to find a full-time job. In July, 1.9 million persons were still marginally attached to the labor force. Speaking of which, let’s look at the sectors that created those jobs to underscore why wages have been flat.

The most jobs were created in the trade, transportation, and utilities sector, which saw an increase of 26,977 jobs in July. Education and health services, government, leisure and hospitality, and financial activities rounded out the top five sectors creating the most jobs over the last month.

Wage growth has also lagged behind other economic indicators, such as the employment rate itself, throughout the historically slow recovery following the 2008 financial crisis. In July, average hourly earnings for all workers rose 5 cents in July to $24.99, rising just 2.1 percent over the year. However, economists had expected wages would rise slightly by 0.2 percent in July. Private-sector wages rose 3 cents to $21.01. Meanwhile, the average workweek for all employees in the U.S. increased 0.1 hour to 34.6 hours in July.

Fed policy makers, facing the growing need to raise rates, are struggling with the decision because it will make it more expensive for consumers and the debt-riddled government to borrow money. For consumers, it will be more difficult to pay for big ticket items such a new home, an automobile or kitchen appliances. With wages essentially stagnant, the Fed is concerned that raising borrowing costs will stifle what little economic progress has been made since 2008.

For months, the Federal Open Market Committee had been saying the decision to raise rates was “data dependent,” but a second quarter GDP report released last week alleged the economy rebounded from a weak first quarter. Worth noting, as PPD reported, the government’s methodologies for calculating GDP were again changed to heavily weigh for investment, which makes economic growth “more happy.” It is the second time in just a few years that the government altered the numbers following a contraction.