HFF Analysis of July 2016 BLS Employment Report

Monday, August 8, 2016

HFF is pleased to report on the latest employment expansion statistics from July 2016. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

U.S. job growth rose by a higher than expected 255,000 in July. Minor upward revisions were made to June (292,000 versus 287,000) and May payrolls (24,000 versus 11,000). Payrolls have risen an average 186,000 this year, slowing from average gains of 229,000 in 2015 and 251,000 in 2014. The participation rate was up a 10th of a percentage point to 62.8 percent. The strong employment report raises the odds of a Federal Reserve rate increase as soon as next month.

Current expansion cycle similar to 1991 to 2000 and greater than 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

Attractive Job Growth Cooling

The U.S. created 2.3 million jobs in 2015, the second highest level of expansion since 1999. The last five years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2015, the U.S. created 2.7 million jobs, but nearly 42 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors.

Combined, Retail Trade (289,000) and Leisure & Hospitality (421,000) created approximately 710,000 jobs in the year ended July 2016, accounting for some 29 percent of the headline growth nationwide. Retail Trade accounts for 76 percent of the headline Trade, Transportation & Utilities growth. We can assume continued broad-based growth in the retail and industrial property types as we progress deeper into the economic recovery. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 550,000 jobs in the year ended July 2016.

Fortunately, Temporary Staffing only accounted for 55,000 (~10 percent) of these positions. However, Temporary Staffing is slowing, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions.

Education & Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 639,000 jobs in the year ended July 2016, the highest of any major employment sector. Mining & Logging and Manufacturing continue to undermine headline growth with approximately 130,000 jobs being lost in the year ended July 2016.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the labor force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descended from a recent high of just over 17 percent; however, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The underemployment rate fell to 9.6 percent in June, the lowest level since April 2008, but ticked up to 9.7 percent in July.

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four-plus percent in each of these periods as overall economic activity became reflected in strong wage growth. With the current year-over-year percent wage growth registering ~2.6 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied, if not triggered by, FOMC tightening to counter inflationary forces).

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