What to Watch on Jobs Day: The road to full employment happens cumulatively over many months
I am cautiously optimistic that the topline payroll numbers in this Friday’s Employment Situation Report will build on June’s positive upturn and come in stronger than the weaker April and May figures. At the same time, observers should have the long view in mind, and not put too much stock in one month’s statistics. Whether it is nonfarm payroll, prime-age employment-to-population ratio, year-over-year nominal wage growth, or EPI’s own missing worker calculation, it’s important to look at trends averaged over time. So, here’s my rather simplistic attempt to do just that and set the stage for Jobs Day on Friday.
Let’s focus on nonfarm payroll employment. That’s the first number that tends to get reported in the news when the report gets released. It’s also the number that’s displayed the most volatility as of late. Below I’ve charted monthly payroll employment over the last year. May stands out as a low point over the year—and would even if the striking Verizon workers were added back in—and, in fact, it’s a low point of the last few years. The strong rebound in June (which included the returning Verizon strikers) stands in contrast to the rest of 2016, but it’s awfully close to the average of the last three months of 2015.
Payroll employment over the last year
|Month||Change in payroll employment (in thousands)|
Source: EPI analysis of BLS Current Employment Statistics public data series.
So, June’s number was undeniably good news. It would be great news, if it’s the start of a new trend. Either way, growth in that range is a positive sign for the economy and the people in it. As I mentioned last month, it takes about 100,000 jobs per month to absorb new population growth and keep the economy on an even keel. At about 185,000 jobs per month, we will see the unemployment reliably fall to 4 percent over the next year. If we see a stronger growth rate in excess of 260,000 jobs each month over the next year, not only will the unemployment rate reliably fall, but we should also see a significant increase in labor force participation, on the order of a million more people.
In that regard, June’s payroll increase of 287,000 jobs was certainly welcome news. Every month that we can move the ball forward towards full employment is an undeniably good step. Even the most recent three-month average of 147,000 jobs a month is moving in the right direction—but it’s important to keep in mind that every month we’re not at full employment is a month where wage growth is weak and where some people who want a job can’t find one.
A few months of less than 100,000 jobs would be troubling. Looking at the longer-term trends, it’s clear that we are far exceeding that mark. Still, it will take another year of strong growth, or two years of decent growth to pull in more missing workers and see this translate into a full employment economy with strong nominal wage growth (the one measure that has continually missed the mark throughout the recovery so far).