Despite 213K Jobs Gain, Unemployment Up by 499K: Wage Growth Anemic Again

Initial Reaction

Today’s establishment survey shows jobs rose by 213,000. Revisions were positive.

The unemployment rate rose from 3.8% to 4.0% as the labor force rose by 601,000. More people are starting to look for jobs but employment only rose by 102,000.

Nonfarm wage growth was +0.2% vs an Econoday consensus of +0.3%. The Phillips’ curve is a joke, but it’s still widely believed.

Job Revisions

The change in total nonfarm payroll employment for April was revised up from +159,000 to +175,000, and the change for May was revised up from +223,000 to +244,000. With these revisions, employment gains in April and May combined were 37,000 more than previously reported.

Let’s dive into the details in the BLS Employment Situation Summary, unofficially called the Jobs Report.

BLS Jobs Statistics at a Glance

• Nonfarm Payroll: +213,000 – Establishment Survey
• Employment: +102,000 – Household Survey
• Unemployment: +499,000 – Household Survey
• Involuntary Part-Time Work: -205,000 – Household Survey
• Voluntary Part-Time Work: -33,000 – Household Survey
• Baseline Unemployment Rate: +0.2 to 4.0% – Household Survey
• U-6 unemployment: +0.2 to 7.8% – Household Survey
• Civilian Non-institutional Population: +188,000
• Civilian Labor Force: +601,000 – Household Survey
• Not in Labor Force: -413,000 – Household Survey
• Participation Rate: +0.2 to 62.9– Household Survey

Employment Report Statement

Total nonfarm payroll employment increased by 213,000 in June, and the unemployment rate rose to 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Job growth occurred in professional and business services, manufacturing, and health care, while retail trade lost jobs.

Unemployment Rate – Seasonally Adjusted ​

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The above Unemployment Rate Chart is from the BLS. Click on the link for an interactive chart.

Nonfarm Employment Change from Previous Month by Job Type

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Nonfarm Employment Change from Previous Month ​

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Hours and Wages

Average weekly hours of all private employees were steady at 34.5 hours. Average weekly hours of all private service-providing employees rose 0.1 hour to 33.4 hours. Average weekly hours of manufacturers rose 0.1 hour to 40.9 hours.

Average Hourly Earnings of All Nonfarm Workers rose .05 to $26.98. That a 0.19% gain. Average hourly earnings of private service-providing employees rose $0.04 to $26.70, a gain of 0.15%. Average hourly earnings of manufacturers rose $0.06 to $27.00, a gain of 0.22%.

Average hourly earnings of Production and Supervisory Workers rose $0.04 to $22.62. That’s a 0.18% gain. Average hourly earnings of private service-providing employees rose $0.04 to $22.35, a gain of 0.18%. Average hourly earnings of manufacturers rose $0.06 to $21.48, a gain of 0.28%.

Year-Over-Year Wage Growth

• All Nonfarm: 2.7%
• All production and supervisory: +2.7%

Wage inflation remains benign.

For a discussion of income distribution, please see What’s “Really” Behind Gross Inequalities In Income Distribution?

Birth Death Model

Starting January 2014, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will comment further.

Table 15 BLS Alternative Measures of Unemployment

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​Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said “better” approximation not to be confused with “good” approximation.

The official unemployment rate is 4.0%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 7.8%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.

Strength is Relative

It’s important to put the jobs numbers into proper perspective.

1. In the household survey, if you work as little as 1 hour a week, even selling trinkets on eBay, you are considered employed.
2. In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.
3. In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.

Household Survey vs. Payroll Survey

The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.

The household survey is a phone survey conducted by the BLS. It measures unemployment and many other factors.

If you work one hour, you are employed. If you don’t have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.

Looking for jobs on Monster does not count as “looking for a job”. You need an actual interview or send out a resume.

These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.

Final Thoughts

Despite the alleged robust jobs picture, wage growth has been anemic. It is not keeping up with inflation, especially for those in school, those seeking to buy a home, and those who buy their own health insurance.

Mike “Mish” Shedlock