It’s difficult to know what to make of the July employment report, released on Friday, in which the Bureau of Labor Statistics (BLS) announced that the economy added 255,000 jobs (on the heels of a gain of 292,000 in June), while the employment level rose by 420,000. Considering the following, these numbers are hard to believe:
- GDP (gross domestic product) rose by only 1.2% in the 2nd quarter, and by only 0.8% in the first quarter. In per capita terms, that’s zero growth – perilously close to a recession. Yet we’re to believe that the economy is adding jobs at more than double the rate of population growth, a rate more characteristic of far higher GDP growth? Seems a stretch.
- The “Labor Market Conditions Index” – a broader measure of the labor market (of which the BLS data is just one part) used by the Federal Reserve to assess labor market conditions, turned positive for the first time this year in July, but barely. That index paints a picture of a flat, weak labor market at best.
- Two days before the release of the BLS report, payroll processing firm ADP estimated that 179,000 jobs were created in July. This was the 2nd month in a row that the BLS data far exceeded the ADP data.
On the other hand, there are reasons to believe the BLS data. On the same day that ADP released its estimate, polling firm Gallup’s “Job Creation Index” held steady at a record-high level for the third month in a row. First time unemployment claims have been running at historically low levels, although it should be noted that not getting laid off isn’t the same thing as getting hired, and the low rate of claims may have as much to do with the changing nature of jobs, making fewer people eligible for unemployment when their work slows down.
On Tuesday, the BLS announced that non-farm productivity fell for the third quarter in a row. This is consistent with an economy that’s adding jobs in the face of weak demand. But why? Why would employers be piling on workers in a flat economy that’s teetering on recession? Corporate earnings have been declining for several quarters now. Companies are usually in full-blown, head count-cutting cost control mode by now. Instead they’re hiring at a healthy clip? It’s possible. Given the political climate surrounding the income inequality issue, there seems to have been a collective effort by corporations to blunt some of the criticism by raising entry-level wages and, possibly, to continue hiring long past the point at which they would normally have begun laying people off.
But that won’t last forever. Shareholders are growing impatient for companies to begin showing actual earnings growth again instead of just slowdowns in the rate of decline. I have my doubts about how much longer the factors that are putting downward pressure on employment and wages – especially falling per capita consumption and population (labor force) growth – can be held at bay.