U.S. Jobs: Employment and Inflation at Mild Cross-Purposes

Last Friday (Aug. 4), we got the Employment Situation Summary from the U.S. Bureau of Labor Statistics; today brings an overview of the Consumer Price Index (CPI) from the same source. While these two items are heading in different directions (the former is a bit down, the latter slightly up — more on that to follow), together they tell a story of a surprisingly steady and resilient economy.

‍

Overall, it looks increasingly like a textbook example of the "soft landing" that economist so desire. That means things settle down, inflation gets tamed, job growth continues at a steady but not extravagant pace, and the market burble off to something similar. Is it too good to be true? Possibly, but things look better than many economists expected them to, especially as they peered from an up-and-down 2022 into an uncertain and potentially recession-bound economy in 2023. Mostly, it's been rather more quiet and sedate rather than exciting or panic-inducing.

‍

The August 4 Employment Situation Summary

‍

Here's a recap of the employment report for July: 187,000 jobs added, with May revised downward by 25,000 jobs to 281,000, and June likewise by 24,000 jobs to 185,000. That puts the trailing quarterly average just under a solid but low-ish 217,000 jobs per month. This is nothing like the high-energy months last year and early this year that topped 500,000 jobs (in some cases by a lot).

‍

For most labor economists coupling such growth with near-historic low unemployment levels — in the 3.4 to 3.7 (for July, that figure sits at 3.5 percent) percent range — is good news. In fact, CompTIA's IT-focused employment analysis currently puts unemployment in technology applications at a near-historic low of 1.8 percent and mentions growth in PC, semiconductor, and components manufacturing; cloud infrastructure, data processing, and hosting; and IT and custom software services and system design (right at the heart of IT employment).

‍

As far as where job growth occurred in July, here are the highlights:

‍

Healthcare grew by 63,000 jobs, more than double the 12-month preceding average of 31,000 jobs, with upticks in ambulatory health care services (35,000), hospitals (16,000) and nursing and residential care facilities (12,000).

Social assistance gained 24,000 jobs, right on par with the 12-month preceding average of 23,000 jobs, with most of the growth coming from individual and family services (19,000).

Financial activities added 19,000 jobs, slightly more than its preceding 16,000 monthly average. Here, growth in real estate and rental and leasing (12,000) was partly countered by a loss in commercial banking (-3,000).

Wholesale trade grew by 18,000 jobs, after staying mostly flat for much of 2023.

Other services gained 20,000 jobs, 5,000 better than its 12-month preceding average of 15,000. Personal and laundry services contributed 11,000 to this total. Right now, this sector is still 0.9 percent (53,000 jobs) below pre-pandemic numbers.

Construction added 19,000 jobs, nicely in line with  the 12-month preceding 17,000 average. About 13,000 of the new jobs came in residential specialty contractors, with another 11,000 in nonresidential building construction, both slightly offset by 5,000 in job losses in other sub-sectors.

Leisure and hospitality added 17,000 jobs, which makes it relatively flat by comparison to a monthly average of 67,000 for the first quarter of 2023. This sector is also still lagging pre-pandemic employment levels, down by 352,000 jobs (2.1 percent).

Professional business services dipped by 8,000, in stark contrast to the 12-month preceding average of 38,000. Temporary help is slumping (-22,000 jobs), down by 205,000 jobs since it peaked in March 2022. On the plus side, professional, scientific and technical services added 24,000 jobs for the month.

‍

Other sectors that the BLS tracks — namely, mining; manufacturing; retail trade; transportation and warehousing; information; and government — were mostly flat in July.

‍

Wages took an interesting jump in July: Earnings for workers on nonfarm private payrolls increased 14 cents per hour (0.4 percent) to $33.74. In the preceding 12-month period, average hourly earnings are up by 4.4 percent. This beat inflation for the first time in at least a year. It's a perfect segue into my ruminations about the Aug. 10 Consumer Price Index report.

‍

CPI Looks Good

‍

Last month, economists (and the Fed) heaved a vast sight of relief as inflation came in at 3 percent for June. This month, it edged up slightly, to 3.2 percent, for the first time in more than a year. Most analyses put the onus on grocery and gasoline costs (see this Washington Post story). These are more volatile than other elements in the CPI market basket, with summertime gasoline price increases common since the 1950s.

‍

NPR reporter Scott Horsley also cited "basic math" as a cause of this month's modest CPI bump — namely because, given that July 2022 was more or less flat, any increases in prices in July 2023 must register on the CPI. And with notable increments in both gasoline and rent costs, those contributed to the 0.2 percent rise vis-à-vis the June 3.0 percent rate.

‍

That said, core inflation (which strips out gas and groceries) actually dipped from 4.8 percent in June to 4.7 percent in July. Markets jittered at the open on Thursday, but all the major indexes (NASDAQ, S&P 500, and Dow) eventually rose, with gains registering in the 0.1 to 0.3 percent range. The inflation numbers seem to be going down pretty well, at least for the time being.

‍

Where to, from Here?

‍

It looks to me like the economy is settling down into a narrower but still comfortable range. Wages are going up, but not excessively. Job growth is trending downward, but remains relatively strong and looks set to stay that way. Inflation is at least steady, if not as low or declining as quickly as we might like.

‍

Overall, I can live with the current situation. Hopefully, the Fed will decide it doesn't need to hike rates by more than 0.25 percent (if at all) following its next meeting. We'll see how it all turns out. Stay tuned!