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Do Not Judge The Job Market By Its Numbers

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Do Not Judge The Job Market By Its Numbers

ByJin Dao Tai

 JUL 8, 2021

Do Not Judge The Job Market By Its Numbers


Just the three figures.

The U.S. Bureau of Labor Statistics reported 850,000 jobs being added into the U.S. economy in June, surpassing the expectation of 725,000 jobs. Average hourly earnings continue to rise at 0.3% as expected while unemployment rate inched upwards to 5.9% as oppose to the expectation of a decline to 5.6%.

Do Not Judge The Job Market By Its Numbers

Digging deeper into the report.

At first sight, the figures as a whole seems to paint a rosy outlook on the jobs market. But if we were to look deeper into the report, we will see a different story.

Starting with the strong employment change figure of 850,000. June sees the highest number of jobs being added since last August. However, looking at the labor force participation rate, which is made up of the number of people who are employed plus the number of people who are unemployed but are actively seeking employment, we see that it remained unchanged at 61.6% in June. Prior to the pandemic, participation rate had been ranging within 62.4% and 63.4% for many years. It declined to the lowest level of 60.2% last April when the pandemic-led lockdown restrictions were imposed. Although recovery of the participation rate has taken place, it has also stagnated within a narrow range of 61.4% to 61.7% since last June. This shows that there is still a number of people who have not returned to the labor force for whatever reasons.

Next, we turn to earnings. Average hourly earnings were reported to have increased by 0.3%. Prior to the pandemic, this would have been a healthy figure. But right now, the increase in wages is mainly driven by wage hikes from employers who are competing for workers as a result of the lack of labor supply and the difficulty in finding suitable candidates. Furthermore, it was reported that the average workweek for employees have declined. Once again, labor supply is seen as a pressing issue.

Lastly, unemployment rate was reported to have inched higher as opposed to an expectation of a decline. However, looking into the report, we see that one of the reasons behind this was due to the increase in voluntary job leavers who are possibly looking for better job prospects elsewhere. Also, there has been a rise in the number of job seekers, thus increasing the labor force. And so, the increase in unemployment rate is not as bad as it seems after looking at its drivers.

The fact.

No doubt the job figures released this time round do not paint a clear picture, which probably explains why the U.S. dollar did not move in accordance to the seemingly optimistic data. But one thing that is clear is that even with this jobs report, the U.S. job market is still falling behind the pre-pandemic level by around 6.35 million jobs. Even if 850,000 jobs were to be added into the economy every month from now on, it will take at least 7 months for the jobs market to recover to the pre-pandemic level and that will be well into 2022. This is why we have been hearing from members of the Federal Reserve highlighting that the recovery progress of the job market is still far from the central bank’s goal.

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