HFF Analysis of June 2016 BLS Employment Report

Wednesday, July 13, 2016

HFF is pleased to report on the latest employment expansion statistics from June 2016 and a look back at 2015. 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 higher than expected with 287,000 jobs created in June, rebounding from May’s weakness and providing the strongest month of hiring since October 2015. The figure was boosted by the end of a strike at Verizon, which cut 35,000 jobs from payrolls in May. May’s payrolls figure was revised down to a gain of 11,000, the weakest month of hiring since 2010.

It is important to note that June’s report reflected the state of the U.S. job market prior to the U.K.’s decision to exit the European Union. We will start to see the impact of Brexit on the U.S. economy over the next few months.

Average Monthly Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 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 (313,000) and Leisure & Hospitality (413,000) created approximately 726,000 jobs in the year that ended June 2016, accounting for some 30 percent of the headline growth nationwide. Retail Trade accounts for 76 percent of the headline Trade, Transportation & Utilities growth. We can therefore 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 497,000 jobs in the year ended June 2016.

Fortunately, Temporary Staffing only accounted for 18,000 (~1 percent) of these positions. Temporary Staffing is slowing, however, 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 668,000 jobs in the year that ended June 2016, the highest of any major employment sector. Mining & Logging and Manufacturing continue to undermine headline growth with approximately 128,000 jobs being lost in the year that ended June 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 Participation Rate ticked up to 62.7 percent.

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 percent-plus 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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