July 30, 2024
(The Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, August 2nd at 8:30 AM Eastern Time.)
The rate of job growth has slowed to what most economists would view as sustainable, with the economy adding an average of 177,000 jobs a month over the last three months, roughly the same as the 187,000 monthly average in the year before the pandemic. This should be enough to keep the unemployment rate steady.
However, the unemployment rate has been on a slow upward path since it bottomed out at 3.4 percent, a 50-year low, last April, hitting 4.1 percent in June. The large influx of immigrants since the pandemic coupled with the hitting of peak retirement years for the baby boom cohorts make it more difficult to assess the relationship between job growth and unemployment. These two counteracting factors leave a large space for uncertainty in assessing the growth of the potential labor market.
Unemployment and Employment in the Household Survey
Given the rise in unemployment over the last 14 months the new data on the unemployment rate should be of central importance in the July report. The June rate is one that the Fed should feel comfortable with. Given recent history we should be able to do better, and it would be bad news if the unemployment rate continues to rise.
Even as the unemployment rate has risen, the employment to population ratio (EPOP) for prime age workers (ages 25 to 54) has remained high, standing at 80.8 percent in June, 0.3 percentage points above its pre-pandemic peak. There was an unusual shift by gender in June. The EPOP for prime age men rose 0.5 percentage points to 86.5 percent, 0.1 percentage points below its peak for the recovery. The rate for women dropped 0.6 percentage points to 75.1 percent from a record high in May. These data are erratic, but the June changes were large single-month movements. It will be important to see the extent to which they are reversed in July.
The change in total employment in the household survey will also be important to note. The survey showed an increase in employment of just 116,000 in June. The rise over the last year has been 195,000. That compares with job growth in the establishment survey of 2,611,000 jobs. The data from the Business Employment Dynamics Survey and the Quarterly Census on Employment and Wages indicate that the benchmark revision to the establishment survey may lower job growth, but this would likely be a downward revision in the neighborhood of 500,000 jobs. That still leaves a gap between the two surveys of close to 2 million over the last year.
Job Growth Likely Under 200,000
We should expect to see job growth in the neighborhood of 180,000, near the average for the last three months. Virtually all recent data from public and private sources indicate the economy is still growing at a healthy, but not excessive, pace. This would be consistent with a monthly rate of job growth under 200,000.
Hours and Productivity
We had three quarters of extraordinary productivity growth at the end of 2023 followed by very weak growth in the first quarter of 2024. The second quarter will show some recovery, but still in the neighborhood of 1.5 percent. This is roughly the rate that we saw before the start of the pandemic, although slightly below the Congressional Budget Office’s (CBO) projection for productivity growth for this year and into 2025.
The index of aggregate hours will be the item to watch for productivity in the July report. This has slightly trailed job growth as there has been a modest reduction in the length of the average workweek, but this was mostly a one-time reversal of a pandemic-driven increase in average weekly hours.
Wage Growth
Wage growth has been roughly 4.0 percent over the last year. The average hourly wage grew at just a 3.6 percent annual rate over the last three quarters. This is only slightly higher than the 3.3 percent rate in the two years prior to the pandemic. If the CBO projections for productivity growth of close to 1.7 percent prove right, this pace of wage growth would be consistent with the Fed’s 2.0 percent inflation target, even without any reversal of the pandemic shift from wages to profits.
Continued Strong Growth in Health Care and Construction
Health care has consistently been the leading sector for job growth throughout the last two years. That will likely continue into July, although the June figure of 48,600 new jobs was substantially below the average of 63,000 over the prior year. Construction has also sustained a healthy pace of job growth, despite the Fed’s interest rate hikes. The sector added 27,000 jobs in June. It will probably show comparable growth in July.
The government sector has also grown rapidly over the last year, adding an average of more than 50,000 jobs a month (almost all at the state and local level). There was a big jump of 70,000 jobs reported in June. This was likely a seasonal adjustment issue, which would mean sharply lower job growth in July.
Manufacturing employment has been nearly stagnant over the year with the sector losing 8,000 jobs in June. We are likely to see another modest drop in July.
Black Unemployment
The unemployment rate for Black workers stood at 6.3 percent in June, up 1.5 percentage points from its all-time low of 4.8 percent last April. The monthly data are highly erratic, so we should see some decline in this number for July.
Unemployment for Asian Americans Should Fall
There was an extraordinary one-month jump of 1.0 percentage points, to 4.1 percent, in the unemployment rate for Asian Americans in June. This put the unemployment rate for Asian American workers slightly higher than the rate for white workers, reversing the normal pattern. There should be some reversal of this jump in July.
The Share of Unemployment Due to Voluntary Quits
This share rose to 11.2 percent in June from 10.8 percent in May. This is still very low given the overall unemployment rate. It averaged 13.1 percent in the two years before the pandemic and peaked at 15.9 percent in 2022. It would be reassuring to see some further rise in this measure of workers’ confidence in the strength of the labor market.
Another Healthy Jobs Report
Ever since the Fed began raising rates in March 2022 we have been looking for evidence that the labor market was weakening and the Fed could stop or reverse course. We arguably have been seeing evidence for a while, but the rise in the unemployment rate of 0.7 percentage points since last April is a very big piece of evidence. The labor market still looks mostly healthy, but at this point there is a real argument that labor market weakening has gone too far.
CEPR produces same-day analyses of government data on employment, GDP, and other topics. Follow @DeanBaker13 on X to get his quick-take analysis of government data immediately upon release.
