The Labor Market in 2016: A Mid-Year Update

Jul 11, 2016 - 12:00pm

Senior Economist

The past few months have seen increased volatility in the labor market but net out to the same slow and steady growth pattern of recent years. After reporting a dismal rate of only 11,000 jobs created in May (downwardly revised), Friday’s report from the Bureau of Labor Statistics showed nonfarm payroll employment increased 287,000 in June. Now seems like an opportune time to take stock of what has happened over the first half of 2016 and consider the outlook for the remainder of the year.

After growing at an average pace of 229,000 in 2015, job growth slowed to 195,000 on average in the first quarter and slowed further to only 145,000 in the second quarter. This is consistent with the reported slowdown experienced by the economy during this period. Real GDP increased at a 1.1% annual rate in the first quarter after growing at a 1.4% rate in Q4 2015. GDP growth is expected to improve in the second quarter, driven by stronger personal consumption growth, but overall growth in 2016 is likely to be more subdued than in 2014 or 2015.

The underwhelming pace of growth should dampen expectations in the labor market for the remainder of the year. The average pace of payroll employment growth has been only 175,000 in the first half of the year and may slow even further in the second half, perhaps to around 150,000 or less from July through December.

Despite June’s strong headline job growth number, the unemployment rate increased to 4.9% in June from 4.7% in May. The increase was the result of a small increase in the labor pool reflected in an uptick in the labor participation rate to 62.7% combined with anemic household employment growth (+67,000).  

Occasionally the two surveys reported by BLS produce anomalous results, and this appears to have been the case in May, where the dip in the unemployment rate and the exceptionally slow pace of job growth were statistical anomalies quickly offset in June. In short, May wasn’t as bad as initially reported, and so June’s report should be seen as compensating for May, not signaling the possibility of a bona fide acceleration in job growth or the economy.

Improvement continues since the start of the year, but it is thin gruel. The number of marginally attached workers has declined from 2.1 million in January to 1.8 million in June. Likewise, the number of people working part time for economic reasons decreased to 5.8 million in June from 6.0 million in January. There has been some modest wage growth and the expectation of continued growth this year. But on net, the labor market is growing at a slow and steady, but entirely unfulfilling, pace.

The latest jobs report has important implications for policymakers. The Federal Reserve last increased the Federal Funds rate by 0.25% in December 2015. However, the deterioration in the global outlook, uncertainty in the aftermath of the “Brexit” vote, and recent weakness in job growth since December are expected to slow the pace of rate hikes. A second rate hike does not appear at all imminent, though it is hard to tell because Federal Reserve leadership appears to formulate a new data “dashboard” monthly. Where once the catchword was “forward guidance,” the best guidance available today appears to be “guess.”

Although the economy has been defined by its underperformance since the end of the recession, sound policies would still accelerate the return to true full employment and a stronger long-run growth rate. The Chamber’s 6 for '16 agenda provides a starting point for thinking about the important reforms necessary in a broad range of policy areas. They include fighting regulations, defending our financial system, advancing trade, producing American energy, electing the right candidates, and answering attacks on American business.

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About the Author

About the Author

Brian Higginbotham
Senior Economist

Brian Higginbotham is a senior economist at the U.S. Chamber of Commerce.