June Jobs Report Confirms Economic Stall

On Thursday, the Labor Department reported the economy added 288,000 jobs in June, beating economists' expectations. The Department also revised upward job gains in April and May, bringing the average monthly gain for the second quarter to 272,000 jobs a month. 

While this top-line job growth is generally good news, a deeper look at the numbers show the economy is far from achieving the breakout growth many economists have been expecting. In the most meaningful sense, the economy is still limping forward.

Almost 6-in-10 of the 262,000 jobs created in the private sector in June were in industry sectors where average weekly earnings are lower than the national average. Retail gained 40,000 jobs, but earnings in the sector are one-third less than the national average. Education & Health and Leisure & Hospitality gained a similar number of jobs, but also pay less than the average. Jobs in the Leisure sector pay less than half the amount averaged across the economy. 

Adding more jobs in any sector is obviously a good thing, but growth in these sectors allow people to pay their bills. With earnings below the national average, these new jobs are unlikely to fuel the increase in consumer spending businesses are looking for to expand and invest in their operations. 

After the dismal 1st Quarter, when the economy contracted by almost 3%, economic analysts and media were looking for some sign in the June jobs report that the economy had "snapped back" from this contraction. While the headline growth of 288k jobs will dominate the holiday-weekend news coverage of the report, it shows no sign the economy is gaining any kind of steam. 

In the 2nd Quarter, the adult population of the US grew by 550,000 over the first three months of the year. The number of people employed, however, grew by only 479,000. In other words, the economy didn't create enough jobs in the 2nd Quarter to absorb population growth. The unemployment rate fell because the number of people not in the labor force jumped to a record 92.1 million. 

Beyond population growth, there also doesn't seem to be any pent-up demand for more workers. Overall, there has been no increase in the average number of hours worked each week. Real job growth is usually proceeded by increases in the average number of hours worked, as employers try to get more out of their existing workforce before hiring. 

Worse for the economy, however, is the increase in the number of workers with part-time jobs for "economic reasons," i.e. slack business conditions or the unavailability of full-time jobs. That number increased in the 2nd Quarter comported to the 1st. In the first three months of the year, an average of 7.2 million Americans had part-time jobs for economic reasons. In the 2nd Quarter, that average rose to 7.4 million. 

In a nation with a $15 trillion economy and over 300 million people, there are always going to be positive individual data-points. These don't necessarily translate to positive news for the overall economy, though. The headline growth of 288k jobs in June is certainly good news, but, in itself, it doesn't support any real growth in the economy. 

If anything, Thursday's jobs report suggests that 2nd Quarter GDP numbers are also likely to disappoint. The scale of the economic pull-back in the first quarter shocked many economic observers. The June jobs report is their warning call not be be fooled again. 


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