Here’s the smartest thing I’ve read about today’s news that the economy added 287,000 jobs in June, way more than the 180,000 consensus among economists surveyed by Bloomberg:
“The bottom line is that seeing through the month-to-month volatility, the U.S. job market is healthy and job growth [on average over the last three months]–at nearly 150k – is right as rain at this point in the economic cycle,” Michael Dolega of the Toronto-Dominion Bank said to Bloomberg.
What makes this so smart?
First, Dolega emphasizes the longer term trend over the monthly gyrations in the numbers. At the same time as government statisticians announced the creation of 287,000 jobs in June, they also revised May’s already shockingly weak 38,000 job figure down to just 11,000. That leaves us looking at a swing from 11,000 to 287,000– or 276,000 jobs in a month. An $18 trillion economy just doesn’t move that fast. So somewhere in the month to month data there’s a statistical glitch.
If instead we look at the smoothed average over the last three or six months we get a much more useful and accurate picture of the economy. Over the last three months on average the U.S.economy has created 147,000 jobs. The average for the last six months is 172,000.
The average says that the U.S. economy didn’t either fall into a black hole in May or shift to warp speed in June.
Second, Dolega puts the monthly averages in the right context. This economy is late into a business cycle that began with the recovery from the bottom in 2009 of the global financial crisis. Economies coming off a bottom grow faster than economies that are in Year Seven of a recovery. You can see that by comparing the 2016 six-month average for jobs to that average for 2015 and 2014. The six-month average for jobs created is 172,000 in 2016 but 229,000 in 2015 ands 251,000 in 2014.
As recoveries age it simply becomes harder to put anyone still out of work to work as the economy reaches whatever number represents full employment at that moment. Most people looking for work have found it and many of those still looking don’t have the skills that employers want. It’s not especially shocking that the official unemployment rate climbed to 4.9% in June from 4.7% in May.
All this argues that today’s surprisingly strong 287,000 figure isn’t likely to impress the Federal Reserve as much as some parts of the market seem to think today. The Fed will, of course, be glad to have solid evidence that the U.S. economy isn’t headed over a cliff. But today’s numbers still leave the U.S. central bank uncertain–with all uncertainties such as Brexit considered–how fast a U.S. economy at this point in the business cycle is likely to grow. And how likely it might be that an interest rate increase might take too much steam out of the economy.
At the close in New York the Standard & Poor’s Stock index was up 1.36%%. Crude was modestly higher with West Texas Intermediate bumping up 0.27% to $45.41 a barrel and Brent crude rising by 0.78% to $46.76.