Mixed Employment Report Points to More of the Same for Economic Growth

Today’s payroll beat of 222,000 nonfarm jobs being added to the economy in June should be viewed in a larger context of overall slowing employment statistics that all point to the US economy remaining in its relatively weak and slowing trend. First, even though the 222K new jobs seems like an excellent reading, we should remember that year-over-year employment growth has been slowing consistently since early 2015 and now stands at about the lowest growth rate since early 2014 (chart 1). Second, average hourly earnings growth continues to trend lower and despite the apparent tightness of the labor market wages can’t seem to gain any real traction (chart 2). Finally, growth in aggregate weekly hours peaked out in 2012 and has been on a declining trend ever since, with the latest downtick just reinforcing the lackluster nature of this statistic (chart 3). When we combine these three readings into what we call a nominal income proxy (employment times average hourly earnings times aggregate hours) and then overlay nominal GDP, what we observe is that this latest employment report suggests a slight uptick in Q2 nominal GDP, but to a level that is still below the peak quarterly growth rates in each 2016, 2015, 2014 and 2013 (chart 4). Given the lack of significant productivity growth  (i.e. corporate profits), we should expect the slowing trend in the employment statistics and economy as a whole to continue to slow into this late cycle environment.