What a difference a couple years can make.
Friday’s jobs report was a slight miss, with the Labor Department announcing that the U.S. economy added 209,000 jobs in July and the unemployment rate ticking up to 6.2%. But if this report is what constitutes disappointing, it only goes to show how far the labor market has come in the past two years.
Back in late 2012, when the Federal Reserve was just launching its third, open-ended bond buying program (known as quantitative easing), Chicago Fed President Charles Evans argued that the Fed should keep its foot on the monetary policy pedal until U.S. employers were adding 200,000 jobs per month on a regular basis—at least for two straight quarters. Well, the past 12 months have seen the strongest average job growth—214,000 jobs per month—than at any point since the recovery began, while July’s job gains marked the sixth straight month (or second straight quarter) that the U.S. economy has added more than 200,000 jobs.
And let’s talk about that unemployment rate. Sure, it increased by a tenth of a percentage point, but this is happening for the right reasons. The labor participation rate edged up by a tenth of a percentage point, to 62.9%, while the labor force grew by 329,000, marking the third straight monthly increase. To put this in perspective, the average growth of the labor force since the beginning of 2010 has been 52,000 per month. These figures come from the volatile household survey, where it’s doubly important to not place too much emphasis on any single month’s reading. But the labor force has averaged 153,000 new entrants in 2014, much better than in previous years. And remember, any trend towards a growing labor force in an age when Baby Boomers are retiring in droves is a good sign.
The most troubling aspect of today’s report is the fact that we’re still not seeing the sort of above-inflation wage growth that economists have been forecasting and the economy desperately needs to grow at a sustainably above-trend rate. After increasing six cents per hour from May to June, average hourly earnings rose just 1 cent to $24.45 per hour, while wage growth over the past 12 months has remained right around inflation, at 2%. Economists were expecting the 12-month wage growth to come in at 2.2%, and it needs to be even higher than that for consumer spending to kick into a higher gear.
At the same time, tame wage growth is likely good news for the markets because the Fed will probably look at this report and see no reason to speed up its timetable for raising short-term interest rates.
In all, while this report was a slight miss, it is added evidence that the recovery is accelerating and that the economy is in a much better position than it was one or two years ago.
