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  Dr. Sohn's Commentary

Nonfarm Payroll Report for July

August 04, 2017

The economy added only 209,000 jobs in July. The strength in the job market was widespread throughout the economy. The June number was revised up by 9,000. The unemployment rate dropped to 4.3 percent from 4.4 percent with rising labor force. Wages rose 0.3 percent for the month and 2.5 percent form a year ago.


Janet Yellen must be pleased this morning. The labor market is going her way. Job gains are better than expected and broad based. Both labor force and labor participation rate have moved in the right direction. The economy is at full employment. The stronger income and confidence auger well for consumer spending, the backbone of the economy. The FOMC has received a “go” signal for another hike in the interest rate and the start of a balance-sheet normalization later this year.  


However, it is not a time for wild celebration. The fly in the ointment is slow wage gains. The year-over-year wage gain has been stuck at 2.5 percent pace since April despite the healthy labor market.  


Here are some of the potential reasons for a sluggish wage increases. A significant portion of job gains are coming from relatively low-skilled and low-paying jobs. In this report, employment in leisure and hospitality—mostly restaurant workers—represented bulk of the gains. For example, Amazon has been ramping up hiring at warehouses; these are not necessarily high-paying jobs. Employment increases in skilled jobs have been less robust with modest wage gains in part because of the shortage of skilled workers from software engineers to carpenters.


Labor force, labor participation rate and the part-time workers for economic reasons all have moved in the right direction. This means that some workers are coming out of the woodworks as the word has spread that there are jobs to be had. These tend to be mostly low skilled, low paid workers in service industries limiting wage increases. We should be thankful for the low-paying jobs since the economy needs both low- and high-paying jobs.


Another concern is the sluggish economic growth as represented by real GDP. To be sure, it did rebound in the second quarter to 2.6 percent from 1.2 percent during the first quarter. For the year as a whole, it won’t be much more than 2 percent falling behind Eurozone’s growth.


On balance, this report gives another Happy Face to the economy.






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