Part of the reason this strong job growth is taking place despite a low unemployment rate is that there were, in June at least, more people coming into the labor force. One of the most disappointing results in the May numbers was a sharp drop in the number of people in the labor force, but it looks to have been a statistical aberration, almost completely reversing itself in June.
With the unemployment rate relatively low — 4.4 percent in June — future growth in employment will need to come not from people who are actively looking for a job today, but from pulling people into the job market who currently aren’t working or looking for work at all.
The overall trend in 2017 isn’t great on that front. The civilian labor force has increased by only 84,000 people a month on average, down from 140,000 in 2016. But the June numbers are at least some assurance that things aren’t as bad as the May numbers suggested and that there continue to be potential workers out there who might join the labor force if the economy truly hums.
Which brings us to a third area in which the data point to some room for further improvement in the jobs picture. Wage growth showed no sign of improvement in June; average hourly earnings rose 0.2 percent and are up 2.5 percent over the last year. Those numbers aren’t horrendous given low inflation, and aren’t shocking given low growth in labor productivity. But they hardly point to an environment where employers are so desperate for workers that they are, in the aggregate, getting into bidding wars for their talents.
Indeed, the 2.5 percent annual growth in hourly earnings is consistent with the pattern in place for years now. It is neither an acceleration nor a deceleration. In any market, you expect that when something is getting scarce, its price will rise more quickly. The fact that wages — the price of labor — are not rising more quickly is a good hint that labor is not as scarce as the 4.4 percent unemployment rate might suggest.
And while unemployment rose (from 4.3 percent) for good reasons in June — people entering the labor force — the simple fact that not all of those new entrants were immediately snapped up by employers is a hint that there may be some slack remaining in the job market. The broader measure of unemployment known as U-6 rose even more, reversing a drop in May and rising to 8.6 percent from 8.4 percent.
Job creation is more robust than it had seemed, while wage growth is soft and the labor force is growing. It would be a mistake to make too much of one month’s numbers, but for now the numbers support optimism that the labor market has room to get better — with higher wages for more workers — before it gets worse.