Adding 209k Jobs is “Cooling”?

Reuters Article

U.S. job growth slowed more than expected in July and an unexpected rise in the unemployment rate pointed to some slack in the labor market that could give the Federal Reserve room to keep interest rates low for a while.

Economists polled by Reuters had expected payrolls to increase 233,000 last month and the unemployment rate to hold steady at 6.1 percent.

July marked the sixth straight month that employment has expanded by more than 200,000 jobs, a stretch last seen in 1997. The one tenth of a percentage point increase in the unemployment rate to 6.2 percent came as more people entered the labor market, a sign of confidence in the job market.

Fed officials on Wednesday cautioned that “significant” slack remained, signaling patience on the rate front.

The cooling in hiring is unlikely to change perceptions about strong economic growth in the third quarter.

My opinion: I’m not convinced at all that adding 209,000 jobs in July should be viewed as a “slowing” or “cooling”.  As quoted from the article above, “July marked the sixth straight month that employment has expanded by more than 200,000 jobs, a stretch last seen in 1997.” That would be like a team winning six straight championships but since they only won the last one by a few points they aren’t as good anymore… Not to mention both May and June were revised up another 15,000.

Turning to the unemployment rate .1% uptick — here is another positive sign as it signals people reentering the job market. One of the biggest concerns for the Fed right now (if not THE biggest concern) is the slack in the labor market.  Increasing payrolls by 209k while the unemployment rate ticks up means there are still tons of people being unaccounted for in the labor market, yet that slack is tightening.

Which brings me us to the wage issue.  Since the supply of labor is so enormous compared to the demand, there is no reason for employers to compete for labor based on wages.  When the supply of labor becomes less abundant we will begin to see wages increase.  And based on the estimates for when the Fed is expected to increase interest rates, it appears the prediction for the slack to dissolve and wages to increase is roughly half way through 2015.

featured image provided by ccsf.edu

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