It’s too soon to a call a rebound in jobs, but that’s exactly what many analysts did last Friday upon reviewing the latest employment data. The positive reading of the July numbers found support in the equity market, as well, which pushed the S&P 500 to its highest level since May. Treasury yields inched up, as well, as investors found an offset to an otherwise disappointing spate of economic reports.
There were some clear positives in the labor report. Following several months of shrinking net gains, the Establishment Report showed private employers adding 172,000 jobs during July. Hiring was concentrated in education and health services, as well as hospitality employment and manufacturing.
The generally sanguine response to the employment report's headline results belies serious weaknesses in its alternative measures. Professional services remains dependent on momentum in temporary hiring, which has been cited too casually as a leading of indicator permanent jobs. Financial services were essentially unchanged in July and are down over the year.
In sharp contrast with the Establishment data, the Household Survey showed employment falling by 195,000 jobs over the month. The labor participation rate slipped to 63.7 percent, near its post-recession low, as the number of Americans opting out of the workforce increased by 350,000.
The short-term adjustments reflect persistent weaknesses in the US labor market. Since the beginning of the recession, the size of the labor force has been essentially unchanged, even as opt-outs have pushed the non-working population more than 10 percent higher.
Skills mismatches, spillovers from political gridlock, and well-intentioned labor regulations with sometimes-deleterious consequences are factors that demand more serious attention from policymakers. The focus on temporary remedies, including an extension of the payroll tax cut and the possibility of additional interventions by the Fed, are no substitute for attention to these persistent challenges to renewed prosperity.
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