Eight years into the economic recovery, Americans on the lower rungs of the ladder are finally getting some relief in the job market, and there could be more to come.
Underneath a 209,000 gain in July payrolls that was stronger than forecast on Friday, significant shares of job growth were in lower-wage industries such as restaurants and home health-care services. As the overall labor-force participation rate ticked up 0.1 percentage point, the level for people age 25 or older without a high school degree surged to the highest since 2011. In leisure and hospitality, which typically carries lower pay, annual wage gains of 3.8 percent outpaced the average.
Highlights of Employment (July)
- Payrolls rose 209k (est. 180k); May-June revisions added 2k jobs
- Unemployment rate, derived from separate survey of households, fell to 4.3% (matching est.)
- Average hourly earnings rose 0.3% m/m (matching est.) after 0.2% gain; up 2.5% y/y (est. 2.4%)
Other indicators suggest that even with the tightening job market, some slack still remains. That leaves room for additional gains that would back up President Donald Trump’s drive to bring people back into the workforce as well as support the Federal Reserve’s go-slow approach to tightening credit.
“The recovery has now been strong enough that even people who struggled the most in the labor market are doing better,” said Jed Kolko, chief economist at jobs website Indeed. “Both job and wage growth are strongest in lower-wage industries.”
The S&P 500 index increased and was just below an all-time high while the 10-year Treasury yield rose after the Labor Department data showed employers added workers at a solid clip and monthly wage growth picked up. The dollar also climbed, potentially saving it from a fourth straight weekly decline after the greenback weakened to the lowest since 2015.
Data indicating leeway for further job gains at the lower end include the underemployment rate, which was unchanged at 8.6 percent in July. The so-called U-6 figure includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking. Within that data, the number of people working part-time for economic reasons fell by 44,000 to 5.28 million.
Even as more Americans are entering the labor force and finding jobs, those coming off the sidelines and back into the workforce could also be keeping wage gains subdued. While average hourly earnings rose 0.3 percent on a monthly basis, slightly faster than in June, wages were up 2.5 percent from a year earlier -- little changed from the pace over the past two years, which also owed to factors including weak productivity.
“Job gains were pretty solid,” yet “there are gains to be made and as an economy matures we want to see these kind of workers being drawn into the labor market,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
Broad-based increases in the minimum wage across many states in the beginning of the year could have attracted more workers to industries paying lower wages, resulting in an acceleration of job growth in these sectors, according to an analysis from Bloomberg Intelligence.
On the campaign trail, Trump highlighted the millions on the sidelines of the labor market as a “silent nation of jobless Americans” and promised lower tax rates and deregulation that would “massively” increase jobs and wages. While he has been praising the pace of job gains since he took office in January, the rate has been similar to 2016.
“Excellent Jobs Numbers just released - and I have only just begun,” the president tweeted about 15 minutes after the report. White House economic adviser Gary Cohn said in an interview with Bloomberg Television that “we’re bringing Americans back into the workforce, and that’s what the president set out to do.”
Americans have become increasingly optimistic about their ability to find new work. The difference between those saying jobs were plentiful versus hard to get widened last month to 16.1 percentage points for the biggest gap since 2001, according to Conference Board data.
Online retailer Amazon.com Inc. held job fairs this week advertising more than 50,000 jobs available across the U.S., with plans for thousands of “on-the-spot” offers to candidates who applied on-site.
Fed policy makers are likely to be encouraged by signs of a strengthening job market, with higher wages consistent with expectations that inflation will rise back to the central bank’s 2 percent target over time. Rising participation shows that a stronger economy is pulling more workers into the labor force, giving the Fed room to move gradually in tightening.
Prices of federal funds futures contracts following the report indicate investors saw increased odds that the Fed will raise interest rates in December. At the same time, Minneapolis Fed President Neel Kashkari, who has argued for keeping interest rates low, tweeted that the data had “nothing new” against a backdrop of strong job growth and weak wages and inflation.
Even so, “I wouldn’t underestimate the ability of job growth to remain pretty healthy and labor demand to remain solid,” said Michelle Meyer, head of U.S. economics at Bank of America Corp. in New York.
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