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Jobs Review Snapshot

- 201,000 jobs were created in August, exceeding expectations.
- Worker earnings are growing the fastest since mid-2009, when the last recession was ending.
- Nearly 1.7 million jobs have been created since the Tax Cuts and Jobs Act was enacted.

Details

The Bureau of Labor Statistics (BLS) reports that a total of 201,000 jobs were added in July. There were 204,000 private-sector jobs created and 3,000 fewer government jobs. The largest gains were in professional and business services (+53,000), education and health services (+53,000), and construction (+23,000). Minor job losses were reported in information (-6,000), retail (-5,900), and manufacturing (-3,000).

The employment-to-population ratio fell to 60.3% from 60.5%, the overall (ages 16 and older) labor force participation rate (LFPR) to 62.7% from 62.9% and the prime-working age (ages 25 to 54) LFPR to 82.0% from 82.1%. The latter remains short of its 83% average from the previous business cycle’s expansion, which suggests room for elevated rates of economic growth.[1]

The headline unemployment rate (U-3), which counts as unemployed those who searched for work in the last four weeks, was unchanged at 3.9%.[2] The “real” unemployment rate (U-6), fell from 7.5% to 7.4%, the lowest since April 2001. The U-6 includes those in U-3, those who searched for work in the past twelve months, and those who want full-time work but can only find part-time work.

Average hourly earnings (AHE) and average weekly earnings (AWE) of production and nonsupervisory workers[3] were 2.8% and 3.4% higher than 12 months ago, respectively.[4] An AWE growth rate that exceeds the AHE growth rate indicates people are working more hours per week since last year. During the previous expansion AHE and AWE each averaged 3% growth per year, compared with respective averages of only 2.1% and 2.4% during the Obama-era portion of the current expansion.

Context

This was another strong jobs report. Most notably, the average hourly earnings (AHE) of workers are rising the fastest since mid-2009 when the last recession ended. It understates workers’ gains as AHE excludes benefits and is sensitive to the workforce’s changing composition. As workers left behind by the Obama recovery reenter the workforce because jobs are now available to them, this can push AHE down, even if hourly wage rates are rising. Indeed, since a Republican administration and Congress initiated pro-growth policies in January 2017, the unemployment rates of workers with lower educational attainment have plummeted.

The BLS adjusts AHE with the consumer price index to arrive at its Real Earnings series, which suggests an increase of only 0.1% in the second quarter from a year ago. Accounting for employer-paid benefits and changes in workforce composition, the Council of Economic Advisers found that after-tax hourly compensation increased by 1.4% when adjusted by the Federal Reserve’s preferred inflation index, the personal consumption expenditures price index.

Noteworthy

Jobs numbers were revised down for June from 248,000 to 208,000 (final estimate) and for July from 157,000 to 147,000 (second estimate).

The September Employment Situation release is scheduled for October 5 at 8:30 a.m.



[1] JEC considers the prime working-age LFPR, which measures the ratio of those aged 25 to 54 who are currently employed or have sought work in the past four weeks, a better indicator because demographic factors are affecting the overall LFPR. The dates used to calculate the previous business cycle expansion’s 83% average prime-age LFPR are November 2001 to December 2007.

[2] The U-3 rate is less meaningful than it once was because the labor force participation rate has been low since the last recession.

[3] JEC prefers the production and nonsupervisory workers measure of wages as more representative of the average worker. Production and nonsupervisory workers account for over 82% of all private-sector employees. For service-producing industries, this measure excludes supervisors and employees who are also owners. For the goods-producing sector, workers engaged in management, sales, and accounting are excluded.

[4] These measurements consist only of gross wages and salary and do not account for non-monetary benefits and compensation. They are not adjusted for inflation. AWE accounts for the average number of hours worked while AHE does not.