Troubling Signs Amidst Persistent Strength in Employment Numbers
by Cliff Waldman, Chief Economist
Employment remains a star in an otherwise lackluster economic expansion. U.S. employer payrolls swelled by a strong 209,000 in July, and the unemployment rate fell a tick to 4.3 percent, remaining at a 16-year low. Even with the sluggish GDP growth of recent quarters, it is clear that the U.S. economy is growing above its long-term, non-inflationary potential, creating a strong demand for labor even after eight years of economic recovery and expansion.
The globally sensitive manufacturing sector had another decent and broad-based month of employment additions. After a 12,000 gain in June, factory-sector jobs grew by 16,000 in July. In 2017, manufacturing job gains have averaged nearly 12,000 after contracting for 6 out of 12 months in 2016. Moderately better world economic activity and a slightly weaker dollar have stabilized and boosted manufacturing profitability, which has modestly increased output growth and thus the demand for manufacturing labor.
Nonetheless, there is a dynamic reflected by the July data that is a bit troubling and could be foreshadowing weakness. In an otherwise positive and steady month for the labor market, there was a fairly sharp rise in the number of unemployed who are in the least educated cohort (those who have less than a high school diploma). Probably as a reflection of the same phenomenon, the average and median duration of unemployment rose beyond what looks like normal month-to-month statistical volatility. Part of that was the sharp rise in the number of people within this uneducated group who entered the labor market and began seeking employment, hopefully suggesting a measure of optimism about the availability of low-skilled jobs.
At least so far, their optimism has not been warranted. Why are these newly entered low-educated workers having such problems finding jobs with evidence of the demand for their services to the contrary? There seems to be plenty of anecdotal noise, for example, that employers are having trouble filling summer job openings. The ongoing structural adjustments in the retail sector might very well be part of the story, as this sector is a strong generator of low-wage jobs. There was a small overall gain in retail employment during July, but clothing and food stores as well as gasoline stations all experienced job losses.
Business people, economists, and policy makers all continue to marvel at the gap between sluggish economic growth and strong job gains. They attribute most of this to weak productivity performance. For those who wonder about the sustainability of the growth/jobs dissonance, the low-educated, low-skilled segment of the labor market may have a lot to tell us about the short-term future of the overall employment picture.