Popular Economics Weekly
Total nonfarm payroll employment edged up in May (+75,000), and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services and in health care.
This MarketWatch graph tells it all. Mostly lower-paying businesses in the service-sector; Leisure/Hospitality, Education/Health, and Professional Services gained 76,000 jobs; whereas those in higher-paying construction, manufacturing, wholesale trade, retail and government lost 75,000 jobs.
And since annual wages are barely rising above inflation—now 3.1 percent vs. 3.4 percent in earlier reports—some 5.8 million workers choose either part time work or no work at all, which is basically unchanged for months and means the labor participation rate has probably peaked, prior to the next slowdown (or recession).
The economy has now created an average of 151,000 new jobs in the past three months, down from as high as 238,000 at the start of the year.
So what happened to the consensus for BLS numbers of 180-200k+ payroll growth in May? It certainly looks like the manufacturing industries in particular are losing growth per the ISM manufacturing and non-manufacturing indexes, as I said yesterday. Guess why, with how many trade wars going on, and Midwest farmers now drowning in mud as well as debt? Manufacturers are affected because they have to either import or export most of their parts and products, whereas the service industry is mostly domestic industries (though computer software is exported).
As an example, the factory sector is a listing vessel based on the ISM manufacturing index for May which came in on the low side of estimates at only 52.1. This is the weakest score since October 2016 and shows modest-to-moderate rates of growth for production (51.2), new orders (52.7) and employment (53.7). Backlogs are sharply lower and in contraction, down 6.7 points in May to 47.2 for an unfavorable indication on June employment. But it still shows positive growth.
Whereas today’s ISM non-manufacturing index showed how strong the service sector is, and where most of the lower-paying jobs are created. Employment jumped 4.4 points to 58.1 in the best showing since October last year. New orders are also up 5 tenths to a very strong 58.6 which points to gains for the business activity index (production) in future months. Business activity in May was already very strong, over 60 at 61.2 for a 1.7 point gain.
The real issue will be how to fill the more than 7.5 million vacancies in the earlier JOLTS report. The March Job Openings and Labor Turnover Summary really showed how many more of those lower-paying jobs remain unfilled; and which a rising number of workers are refusing to fill. It’s why wages have risen so slowly for years and inflation has dropped to almost deflationary levels.
It also explains why housing hasn’t taken off during this recovery from the housing bubble. The median income of young adults in the 25–34 year-old age group that are the majority of new homebuyers was up just 5 percent, according to the 2018 report from Harvard’s Joint Center for Housing Studies.
Meanwhile, gross domestic product per capita, a measure of total economic gains, increased some 52 percent in 1988–2017. If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—underscoring how income inequality has helped to fuel today’s housing affordability challenges, as well as economic growth in general.
Harlan Green © 2019
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