July’s nonfarm payroll report exceeded expectations, handily topping estimates with a gain of 255,000 jobs overall and 217,000 jobs in the private sector. Office employment rose by a robust 88,000 as well (Table 1 and Chart 1), led by strength in professional and business services, where almost 1/3 of the advance stemmed from job gains in accounting and bookkeeping services, architectural and engineering services and computer systems design. At least for now, recent data suggest the labor market is firing on all cylinders: the average monthly gain in office-using payrolls over June and July equals 99,000—more than twice as much as the 42,500 average monthly gain over April and May. Despite the fact that financial markets are pricing in just a 26% chance of a move by the Fed at its next meeting, today’s report provides sufficient rationale for a rate hike in late September, particularly given the increase in the length of the workweek as well as a sustained 2.6% annual advance in private sector worker wages.
Even as the labor force participation rate has remained in a half-point range over the past two years (finishing at 62.8% in July), what is surprising is the fraction of unemployed workers who continue to leave the labor force (Chart 2 on the following page.) Yes, the pool of unemployed workers has shrunk dramatically (from a high of 15.3 million in October 2009 to a level that is half that size currently), but the percentage of unemployed workers who leave the labor force in any given month has continued to exceed the percentage of unemployed workers who find a job over the same period. Unless this trend reverses, we are likely to see continued downward pressure on the unemployment rate and a shrinking pool of experienced workers from which employers can chose among—leaving new, less experienced (and potentially less productive) entrants to fill the gap.
Table 1. Monthly Change in Office-Using Payrolls by Category (000s, SA)
Chart 1. Office-Using Employment and Total Payrolls, July 2008 – July 2016 (Seasonally-Adjusted, 000s)
Chart 2. Changes in Unemployed Status by Month (Seasonally-Adjusted Data)