A Status Quo Jobs Report

Jobs By Month

Suzy Khimm summarizes today’s numbers:

The U.S. economy added 209,000 jobs in July, and the unemployment rate rose slightly to 6.2%. It was the sixth straight month that the economy added more than 200,000 jobs, suggesting that the labor market is recovering steadily, though the report was slightly below economists’ predictions of 230,000 new jobs in July.

The last time the economy added 200,000 jobs every month for six months was 1997. Nonetheless, Ben Casselman posits that the “report shows a job market on cruise control, neither losing ground nor accelerating”:

Whether that’s good news or bad is a matter of perspective. On the one hand, the job market is, by pretty much any measure, the healthiest it’s been since the recession ended five years ago. Growth has topped 200,000 jobs for each of the past six months, the first time that’s happened in the recovery. Unemployment, despite July’s modest increase, has been falling steadily, and layoffs recently hit a 14-year low. Hiring has been fairly broad-based in recent months, with sectors that have been strong throughout the recovery, such as health care and energy, remaining so, while long-time laggards such as manufacturing and construction are showing signs of a rebound. Even the government has been adding jobs in recent months.

Yet for all that progress, the job market has never found a higher gear. Employers have added about 2.6 million jobs over the past year, a rate of hiring that’s risen slowly if at all over the past two years. That growth hasn’t been enough to generate meaningful wage growth — average hourly earnings were up just a penny in July — or to put the long-term unemployed back to work.

Mark Whitehouse focuses on the lackluster wage growth:

Overall, the pace of wage growth in the private sector has been remarkably slow and steady: Hourly earnings rose at an annualized rate of 2 percent over the past three months, roughly the same as over the past year and since the beginning of the recovery in mid-2009. That’s just enough to keep up with consumer price inflation, which has run at an average annual rate of 2 percent since mid-2009. … All told, though, wage gains have been meager, and still trail far behind the pace at which workers’ output per hour has increased during the recovery. A bit more of a raise should be nothing to worry about.

Vinik gives the report a once over:

On the surface, this was a soft report, but it’s not that bad as you dig deeper. The unemployment rate rising to 6.2 percent may not seem like a good thing, but it’s completely expected. As the economy continues to recover, it will draw back in workers to the labor force who had previously given up looking for work. That’s exactly what we see in this report, as the labor force participation rate rose to 62.9 percent. … It’s important to keep this all in perspective. Monthly reports are very noisy and the BLS will revise the July numbers over the next two months. A good way to cut down on that noise is by using a three-month moving average. When you use that, you see that the past few months really have seen a slight improvement in the economy:

Rolling Average

Jordan Weissmann looks on the bright side:

[A]s the Washington Post’s Zachary Goldfard notes, we’ve now managed to add at least 200,000 jobs for six months straight—the first time that’s happened since 1997. The feat was more impressive back then, since the economy and the job market were smaller. But the employment recovery has trucked along at a fairly respectable pace through a winter during which the economy shrank, and a spring in which it grew at a surprisingly quick 4 percent rate.

Neil Irwin’s read on the report:

Nothing about these numbers should change your basic assessment of how the economy is doing, unless you had some outlandish view of how the economy was doing to begin with. Gradual, steady expansion in the job market, and the economy more broadly, continues apace.

Drum’s bottom line:

Overall, the economy still appears to be dog paddling along. GDP growth is OK but not great; jobs growth is OK but not great; and wage growth is positive but not by very much. More and more, this is starting to look like the new normal.

(Chart from Irwin)

The Meh Recovery

noisyGDP

Justin Wolfers thinks the latest GDP report is “less interesting for its accounting of the second quarter than for what it tells us about the future path of economic growth”:

At first blush, you might think that G.D.P. growth at an annual rate of 4.0 percent points to a brighter future. But in fact, these estimates are statistically noisy, and there’s no guarantee that strong growth today will translate into good outcomes tomorrow. Indeed, the historical relationship between the two is surprisingly weak. …  All told, these more meaningful data suggest that the economy is not in the middle of some whiplash, but rather that the past few quarters continue the pattern seen throughout the entire recovery, of persistent growth, albeit at a disappointing rate.

Jared Bernstein puts the report in context with the above chart:

The figure below plots quarterly annual growth rates against year-over-year rates for real GDP over the recovery. The annualized quarterly growth rate for Q2–the one getting all the headlines–was 4%; the more-indicative-of-actual-trend-year-over-year rate was 2.4%.

I see two clear points: first, the annual changes provide a much more reliable view of the underlying growth rate, and second, since the yearly rates turned positive in 2010Q1, we’ve been growing at trend, about 2.2% on average. That would be a fine place to be if we’d first made up the deep losses from the downturn. But what happened in this recovery is that we settled into trend growth before we bounced back and repaired the damage. That’s why the job market in particular has taken so long to recover.

Matt O’Brien deems the economy “meh”:

[I]nventories made up 1.66 of the 4 percentage points of growth this quarter. And that, unfortunately, won’t carry over into the future, since businesses won’t need to restock for awhile. In other words, once you account for inventories, the economy wasn’t really as weak as it seemed at the start of the year, and it’s not as strong as it does now. It’s just been the same the whole time: meh.

Suzy Khimm gathers some reaction:

Economists don’t expect the economy to continue growth at the same rate for the rest of the year, though some believe the picture has brightened somewhat. “This release provides evidence that the economy is healthy and will continue to grow at an above-average rate in the second half of this year and into 2015,” said Doug Handler, chief U.S. economist for IHS Global Insight.

“The story is the same—subpar growth during the first few years of the recovery. But 2014 is looking much better,” Stuart Hoffman and Gus Faucher of PNC Financial Services Group said in a statement. “After the very good second quarter growth should settle in at an above-trend 3.0% annual rate in the second half of this year.”

The Economic Policy Institute was more pessimistic. “Essentially, we made up some of the ground lost in the first three months of this year, but there’s nothing in today’s data to indicate that the economy is growing more strongly than it has for the past couple of years,” the group said in a statement.

Ben Casselman is relatively upbeat:

GDP reports are notoriously complex, and there’s always room for caveats and alternative interpretations. But make no mistake: This was a good report, especially in context. A 4 percent annual growth rate isn’t a boom, but it’s significantly better than the 3 percent economists had been expecting, and it more than offsets the first quarter’s contraction. The growth was broad-based, with consumers, businesses and even the government contributing to the rebound. Wednesday’s report provides strong evidence the first-quarter contraction was a one-off event that was probably due in part to the historically bad winter in much of the country: Consumer spending, homebuilding and exports all struggled in the first quarter and rebounded in the second. The revisions, too, were cause for optimism: The first quarter wasn’t quite as bad as it once looked, and the end of 2013 was stronger, suggesting the economy carried more momentum into the start of 2014 and lost less of it when winter weather hit. All of that gives hope for continued growth.

Ylan Mui finds that other “measures point to the growing strength of the recovery, as well”:

A private estimate of monthly job growth by human resources firm ADP released Wednesday morning showed 218,000 net new positions were created in July — slightly fewer than anticipated but still a healthy showing. Mark Zandi, chief economist of Moody’s Analytics, which helped calculate the data, said he expects the country to reach full employment by late 2016.

“At the current pace of job growth, unemployment will quickly decline,” he said. “Layoffs are still receding, and hiring and job openings are picking up.”

Government data show the number of people filing for unemployment benefits for the first time fell to its lowest level in eight years last week. A closely watched survey by The Conference Board showed consumers expressed more confidence in the economy in June than they have at any point since the recession began in late 2007.

Danielle Kurtzleben provides a better way of reading the GDP report:

[C]heck out this chart put together by ZeroHedge. It shows quarterly GDP growth, broken down by the various components that go into adding up GDP:

GDP_components

Take a look at each of those colors, and you’ll see that the green (changes in inventory investment) is the most all-over-the-map. Red (fixed investment) tends to be positive. Darker blue (consumer spending) also tends to be positive. Government spending (orange) can be up or down, but has in recent quarters tended to be modest in size and more often than not negative.

But inventories regularly swing up, then down, then up, then down, and the size change can be big. And it’s for this reason that there’s a better way to look at GDP each quarter. The BEA releases a figure called “real final sales,” and it simply looks at GDP without those swings in inventories. By that measure, GDP only fell at an annual rate of 1 percent (not 2.1 percent) in the first quarter, and grew by 2.3 percent (not 4.0 percent) in the second. Arguably, this is a more stable measure of GDP.