Today’s employment report from the U.S. Labor Department did more than just beat expectations. It also showed more signs of deeper and positive changes in the U.S. economy.
First and foremost, manufacturing continued to improve and has now added jobs in 29 of the last 31 months. Some 12.854 million Americans worked in factories at the end of June, the most since November 2008.
Second, gains are spreading within the manufacturing space. Previously, jobs associated with energy and transportation led the rebound. This was especially true because of domestic shale production and fracking.
But June was different, with machinery and electronics adding almost 11,000 jobs. It was their biggest combined gain since January 2011. Those two segments have crashed since the late 1990s amid globalization and trade with China. But now they’re rebounding as the White House looks to shift trade policy. Is President Trump making a real impact?
Workers Come Back to Work
Another positive in the June non-farm payrolls report was the entry of 335,000 people to the workforce. It was the biggest gain of 2019 and reflects optimism about the demand for labor.
Employers added 224,000 jobs overall, according to the government. That beat estimates for growth of 160,000. The unemployment rate unexpectedly rose, but that’s normal when people re-enter the work force. Wage growth also missed, another non-surprise because those Americans coming back to work earn less than other employees.
It’s an interesting backdrop for the Federal Reserve, which signaled a rate cut at its July 31 meeting. The overall strong job growth argues against that. But on the other hand, June’s low wage growth is consistent with mild inflation and would support a rate cut.
That raises the stakes for next week’s Fed events. Chairman Jerome Powell will speak on both Tuesday and Wednesday. Minutes from the last meeting follow on Wednesday afternoon. These could be major catalysts in the near-term.
Other Potential Positives
Today’s payroll numbers also showed weakness in areas that thrived during last decade’s debt-fueled consumption binge: retail and financial jobs. That’s consistent with other data showing that households have cut back sharply on borrowing. Economists are have overlooked this trend, which you can clearly see in Fed’s latest Z.1 report, table D.1.
Finally, the credit market is showing zero signs of strain. Not only are banks well capitalized. There’s also been virtually no increase in the extra yield (“spread”) investors demand to hold junk bonds. Banks continue to loosen lending standards as well, according to the Fed’s Senior Loan Officer Survey.
In conclusion, fears about a recession have increased recently. Tariff fears, rather than hard numbers, have caused a lot of the worry. Today we got a dose of hard numbers, and they seem to indicate positive things are still happening in the U.S. economy.