June jobs report weaker than it appears

San José, CA – At first glance, the June jobs report released on Thursday, July 3 looks pretty good. The total net new jobs are reported at 147,000, on par with the average of 146,000 for the previous 12 months. Further, the previous two months’ estimates were revised up by a total of 16,000, not lower as has been the pattern. The unemployment rate ticked down by one-tenth of one percent from 4.2% in May to 4.1% in June.

The small drop in the unemployment rate could be accounted for by the drop in the “Labor Force Participation Rate” by the same one-tenth of one percent from 62.4% in May to 63.2% in June. What this means is many people without jobs gave up looking in June, which lowers both the unemployment rate as people have to be out of work and looking for work to be counted as unemployed.

In terms of the jobs report, the increase in new jobs in the private sector fell by almost half from 137,000 in May to only 74,000 in June. Manufacturing jobs, a proclaimed focus of the Trump administration, continued to lose jobs, declining by 7000, the same loss as in May. But the total number of jobs was boosted by a large increase in government jobs, from a tiny increase of 7000 in May to ten times as much, or 73,000 in June.

The federal government continued to shed jobs, down 7000 in June. But state and local governments were reported to have added a total of 63,500 education jobs in June. Now as everyone knows, schools tend to shed jobs in June as the school year ends. This is usually accounted for by “seasonal adjustment” for things like summers, holiday retail hiring, etc. So, it is much more likely that there was some kind of seasonal adjustment problem rather than a rash of hiring at the end of the school year or beginning of summer.

Last but not least, while the average unemployment rate fell by one-tenth of one percent to 4.1%, the unemployment rate for African Americans rose by eight tenths of a percent, to 6.8%. This increase in the unemployment rate would have even been a bit larger for African Americans if their Labor Force Participation Rate had not also fallen, meaning more people who were out of work did not look for work and thus were not counted as unemployed.

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