The more one studies the July jobs report from the Bureau of Labor Statistics (BLS), released August 2, 2019, the more underwhelming it looks. Below the positive topline numbers–164,000 job gains in July, near record-low 3.7% unemployment, 3.2% annual growth in hourly earnings–there are several trends which suggest that slowdowns in the Chinese and eurozone economies are sapping some of the U.S. labor market’s energy.
1. Declining job growth
The economy has now added an average of just 140,000 jobs per month in the past three months, after estimates from May and June were both revised downwards. At 165,000 per month on average, job growth in 2019 is lower than in each of the past eight years and has cooled markedly since 2018, when it averaged a tremendous 223,000 per month.
The pace of job growth wouldn’t be cause for concern if it were the result of a tightening labor market. But two other trends in the report are inconsistent with that explanation.
2. Declining wage growth
Most observers focused on average hourly earnings, which have increased by 3.2% over the past 12 months. That sounds encouraging enough, but there are more concerning signs below the surface. The BLS measures weekly earnings using data on company payrolls, and then divides weekly earnings by weekly hours worked to calculate hourly earnings. The only reason hourly earnings look good is because both weekly earnings and hours worked fell.
Many were hoping to see 12-month growth in weekly earnings solidify at 3.5% in early 2019 and continue rising, after growing for the past four years. Instead, it has fallen from 3.5% in January to just 2.6% in July. The decline in weekly earnings growth and hours worked, an important measure of labor utilization, are both signs that growth in employer demand for labor could be cooling.
3. A declining working-age employment rate
The share of working-age Americans who are employed (those aged 25 to 54) rose steadily in 2017 and 2018, peaking at 79.9% in January and February of 2019. It should have kept rising. Our prime-age employment rate is still lower than that in most other developed countries, and there are still many Americans on the sidelines, willing to work under the right conditions. In the BLS’s household survey, released as part of the jobs report, more than 5 million Americans who are not currently in the labor force say they want a job. The hope that they would be drawn off the sidelines and into gainful employment now seems dimmer. Instead of continuing to rise, the prime-age employment rate has now fallen from 79.9% at the start of the year to 79.5% in July, 2019.
What might once have been interpreted as a temporary blip or statistical noise now appears to be an unmistakable trend: the labor market expansion is not as robust as it once was. In an interconnected, global economy, slower growth abroad means lower demand for U.S. goods, services, and investment goods. The Federal Reserve’s decision to cut rates by a quarter of a percentage point on July 31 should be seen within this context.
