The Economy In Context: July 2018

At 157,000 net jobs created, the preliminary numbers in the July Jobs Report from the Bureau of Labor Statistics came in well below the 190,000 jobs expected by market watchers, and well below the average established during Obama’s second term. July has historically been a month with moderately strong hiring, as it is in the middle of the summer hiring period, as high school aged workers seek summer jobs, and graduates of traditionally begin entering the work force in earnest.

However the drop off from the prior month was sharp, which could indicate the market overdid hiring in May and June, especially given the sizable revisions mentioned in the report, resulting in over 59,000 additional jobs in the second Quarter. This made up for the weak April job numbers and reflected job numbers economists would normally expect to go along with the solid GDP growth of 4.1% for the April to June economic quarter.

jobsnumbers

On the relative bright side was a 0.1 point drop in the relatively suspect official unemployment rate from 4.0% in June to 3.9% in July. It has been at these very low rates for months now, even though the net job creation under Trump has conspicuously under-performed Obama (see chart above) and the U-6 unemployment rate (known as “real unemployment”, and widely referred to during the Obama Administration when it was politically convenient to the Republicans) was at an unadjusted 7.9% in July.

What makes the low official unemployment rate suspect is that the labor force participation rate (LFPR), the percentage of the Americans who are old enough to work (16 or older) and actually in the work force (working or actively seeking work), remains withing a percentage point of its lowest point in decades. Worse, the LFPR also did not change, remaining at 62.9%, precisely where it was in January 2017 on the day Obama left office and economy because Trump’s problem to solve.

So while the Republicans and Trump may want to focus on the suspiciously low official unemployment rate, the big takeaways should be a) that net jobs created fell well below both what analysts predicted, b) that the net jobs created was almost a full standard deviation off of the average of Obama’s second term, which Trump repeatedly described as indicative of Obama’s “weak economy“, and c) that the labor force participation rate has yet to improve beyond where it’s been since 2014.

 


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