HFF Analysis of the June 2018 BLS Employment Report

Friday, July 6, 2018

HFF is pleased to report on the latest employment expansion statistics from June 2018. 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

The U.S. added a higher than expected 213,000 jobs in June. Figures were revised upward to 244,000 in May and upward to 175,000 in April, a net upward revision of 37,000. Payroll creation has averaged around 200,000 since October 2010, marking the 93rd month of consecutive growth. The period of monthly gains is more than three and a half years longer than the prior longest streak from 1986 to 1990.

Unemployment increased slightly to four percent from one of the lowest levels seen in decades last month: 3.8 percent. Unemployment has now been below five percent for 21 consecutive months.

Wage growth decreased to 2.7 percent year-over-year from 2.8 percent year-over-year in May 2018. Excluding last month, wage growth last reached this level in January of 2010. Wage growth continues to be modest considering the unemployment rate. It is worth noting that 601,000 people joined the labor force in June 2018. In May 2018, the labor force grew by just 12,000.

Average Monthly Payroll Creation Slowing

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 2.18 million jobs in 2017. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

 

In 2017, the U.S. created 2.18 million jobs. But nearly 40 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 521,000 jobs, a year-over-year growth rate of 2.5 percent, just below the five year average growth rate of 2.6 percent.

Fortunately, Temporary Staffing only accounted for 95,000 (approximately 18 percent) of these positions. Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 445,000 jobs in the year ending June 2018. Construction added 282,000 in the year ended June 2018.

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. The Unemployment Rate increased slightly to four percent in June 2018, marking the 21st consecutive month below five percent. The Underemployment Rate came in at 7.8 percent in June 2018, a 20 basis point increase from the prior month.

Fortunately, the Underemployment Rate has been descending from a recent high of just over 17 percent. The spread between the two rates is at 380 bps and has been compressing gradually having reached a high of 740 bps in September 2011.

 

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The current year-over-year wage growth registered at about 2.7 percent, relatively low considering the four percent Unemployment Rate. The past three recessions were preceded by a period of FOMC tightening, which align also with an average hourly earnings growth in excesses of four percent, reflecting strong economic activity overall.

 

Sources: HFF Research, Bureau of Labor Statistics, Bloomberg, WSJ, The Federal Reserve

Prepared by HFF Research Analysts Laura Bancroft and Morgan Allen and HFF Managing Director of Research Jimmy Hinton

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