the July 2014 Employment Situation

Last Friday, the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for July.   Total Employment gains for the month came in at +209,000 new positions, of which +198,000 were private sector job gains and +11,000 in government.

As media commentators immediately pointed out, the US has now had the longest string of +200,000 job gain months in almost two decades.  True, the figure came in below the economists’ consensus of +230,000 new positions, but no one seemed to care.  After all, the number was good,–nd it’s the result of subtracting the 3-4 million people who leave their jobs every month from the 3-4 million who take up new ones.  So a difference of 20,000 jobs is an error of 0.5% in either of the two numbers.  The BLS itself says that differences of less than 100,000 aren’t significant.

Revisions to prior months’ data were also positive.  The May figures were revised up by +5,000 to +229,000′ the June tally was boosted by +10,000 to +298,000.

The unemployment rate went up by 0.1% to 6.2%.  But that’s also a good thing.  The unemployment figures are highly politicized.  When unemployed workers become so discouraged that they figure looking for a job is futile and stop trying, they’re not classified as super-unemployed.  Instead, they’re erased from the figures.  All other things being equal, their reclassification makes the unemployment rate fall.  

When conditions improve, the reverse happens.  When people regain hope and start looking for work again, all other things being equal, the unemployment rate rises.  That’s what’s happening now.

What’s left to monitor in the ES?

…wage gains.

In developed economies, inflation is predominantly caused by rising wages.  Because of this, the timing of the Fed moving interest rates out up from intensive care levels and back to normal will be strongly influenced by signs of wage inflation.  So far, the ES shows overall wages rising at a 2.3% annual clip.  There continues to be upward pressure on IT compensation; the same is just beginning to emerge in the construction industry.

Again, this isn’t a bad thing.  In fact, the scarier idea would be that we’ve had the monetary taps wide open for six years without being able to get the economy to perk up to the point where there aren’t tons of unemployed.  What we’re seeing now is nothing more than the economy having a pulse again.

On the one hand, scattered wage gains give the Fed the go-ahead to start to raise short=term rates.  On the other, they’re telling the Fed not to rush.

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