HFF Analysis of the June 2017 BLS Employment Report

Friday, July 7, 2017

HFF is pleased to report on the latest employment expansion statistics from June 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. jobs picked up in June as nonfarm payrolls rose a higher than expected 222,000 and job gains in the prior two months were revised up a net 47,000. This was the biggest jump in payrolls in four months. In June, job gains were strongest for health care, financial services, mining, professional business services and government. The Unemployment Rate ticked up to 4.4 percent from 4.3 percent the prior month since more people joined the workforce.

It is important to note that this month’s data could also reflect a new graduating class and the summer’s seasonal workers joining the labor force. Payroll creation has averaged 199,000 since October 2010, marking the 81st month of consecutive growth. Wage growth rose 2.5 percent in June compared with a year earlier, and little changed from previous months. The report marks a relatively strong finish for the labor market in the second quarter that should support continued gains in consumer spending.

Average 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 2.16 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. Combined, Retail Trade (20,000) and Leisure and Hospitality (314,000) created approximately 334,000 jobs in the year ending June 2017, accounting for some 15 percent of the headline growth nationwide. Retail Trade accounts for 11 percent of the headline Trade, Transportation and 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 624,000 jobs in the year ending June 2017, the highest of any major employment sector.

Fortunately, Temporary Staffing only accounted for 137,000 (approximately 22 percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions. Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 494,000 jobs in the year ending June 2017. Mining and Logging continues to undermine headline growth but continued to grow positively this month with approximately 47,000 jobs being added in the year ending June 2017.

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 up to 4.4 percent in June from 4.3 percent the prior month as more people joined the workforce. The Underemployment Rate ticked up to 8.6 percent in June.

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 more than four percent in each of these periods as overall economic activity became reflected in strong wage growth.

With the current year-over-year percentage 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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