HFF Analysis of the July 2017 BLS Employment Report

Friday, August 4, 2017

HFF is pleased to report on the latest employment expansion statistics from July 2017. 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 continued and even picked up slightly in July as nonfarm payrolls rose a higher than expected 209,000-plus and job gains in the prior two months were revised positively. In other words, labor conditions are better than previously thought and improving. Health Care, Leisure and Hospitality and Professional Business Services led July’s employment gains. Hiring hit five-month highs in Manufacturing and Education and Health Services.

The Unemployment Rate fell to 10 bps to 4.3 percent even as more people joined the workforce. The July Unemployment Rate matched May’s reading as the lowest mark since 2001, a show of lasting vitality for the labor market even as wage growth failed to accelerate. Wage growth rose 2.5 percent in July compared with a year earlier, matching the modest pace recorded most of this year. Payroll creation has averaged 199,000 since October 2010, marking the 82nd month of consecutive growth. The period of monthly gains is almost three years longer than the last longest streak from 1986 to 1990.  

The July figures may give a clearer read on labor-market health after unseasonable weather and fluctuations in end-of-school year hiring affected the labor market over the past few months. Stronger household incomes and buoyant consumer confidence are helping to fuel demand.

Average Monthly Payroll Creation Slowing

The current expansion cycle is similar to the 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. 

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2016, the U.S. created 2.16 million jobs, but nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 580,000 jobs in the year ending July 2017, the highest of any major employment sector. Fortunately, Temporary Staffing only accounted for 124,000 (approximately 21 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 since its a recession-resistant industry, expanded by 507,000 jobs in the year ending July 2017. Mining and Logging continues to undermine headline growth but continued to grow positive this month with approximately 48,000 jobs being added in the year ending July 2017. Health care, leisure and hospitality and business services led July’s employment gain. Manufacturing jobs increased for the second straight month. Government employment increased slightly due to gains at the local level. 

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 descending 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 unemployment rate ticked down to 4.3 percent in July from 4.4 percent the prior month as more people joined the workforce. The July Unemployment Rate matched May’s reading as the lowest mark since 2001. The Underemployment Rate came in at 8.6 percent in July, unchanged from the prior month.

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 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 approximately 2.5 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).

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by: Morgan Allen, HFF Research Analyst, and Jimmy Hinton, HFF Managing Director of Research

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