Economics Speed Round: July 2016

287,000 jobs were created in June is the headline. This number tops expectations, but underlying data strips away some of the shine on this number that leads off this month’s Economics Speed Round. The Employment Situation Report came out today, and the numbers are a mixed bag. Most media attention will focus on what seems to be an unexpectedly large number of jobs created for June.

Total nonfarm payroll employment increased by 287,000 in June, and the unemployment rate rose to 4.9 percent..

This surprised analysts, but the increase in the unemployment number shows that there are still difficulties in the market. For example, the large number of hirings in June seems to be indicative of delayed hiring from May, which saw its already abysmal job number of 38,000 revised downward to 11,000. Right now, the average for 2nd Quarter job numbers is 147,333 jobs per month. That’s down from a 1st Quarter average of 195,667 per month, by about 50,000 fewer jobs.

Both the labor force participation rate, at 62.7 percent, and the employment-population ratio, at 59.6 percent, changed little in June.

While percentage of workers in the work force did not change, the unadjusted U-6 number jumped up by half a percentage point from May to 9.9% (Table A-15), further suggesting that hiring in June is delayed hiring from April and May.

In June, job growth occurred in leisure and hospitality, health care and social assistance, and financial activities. Employment also rose in information, largely reflecting the return of workers from a strike.

This won’t hit the headlines, about 28,000 jobs in information and 11,000 jobs in “motion picture and sound recording industries” are fluffing the June 2016 number. Pulling these numbers out, and the actual jobs created looks more like 248,000. Of these jobs, 59,000 were in leisure and hospitality, which are reflective of summer jobs. Further, the report talks about the downward trend that we covered in last month’s ESR.

Job gains in leisure and hospitality have averaged 27,000 per month thus far this year, down from an average of 37,000 in 2015, reflecting slower job growth in food services and drinking places.

The big job number conceals a slowdown in the economy that continues this year. The third estimate of the 1st Quarter GDP number from Bureau of Economic Analysis came out quietly, and the economy grew by only 1.1%. The economy remains anemic, and the underlying markers are very poor for the upcoming months, which is why the Federal Reserve backed off of plans to increase the federal funds rate in mid June.

The bottom line is that while the jobs number for June seems strong, it is accompanied by enough asterisks that excitement over it should be well tempered. The economy is not healthy. It is not generating jobs at the rate it should be. We are still on track for a recession this year.

That’s the Economics Speed Round for July. Catch everyone next month.

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