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Job growth masks weak wage gains and skills shortages

When the U.S. job market is viewed purely from the perspective of total employment, the picture looks bright.

When the U.S. job market is viewed purely from the perspective of total employment, the picture looks bright.

The economy added 222,000 jobs in June and last Friday the Labor Department revised its April and May job totals upward by a total of 47,000 positions.

The unemployment rate ticked up from 4.3 percent to 4.4 percent, but that was because more people were looking for jobs last month.

“The unemployment rate picked up for the right reasons,” Michael Feroli, chief U.S. economist at JP Morgan Chase & Co., told Bloomberg. “The participation rate ticked up as job seekers came back into the market. It could reflect increased confidence in the labor market.”

When you look beyond the job numbers, however, two stubborn problems reveal themselves — wage growth remains slow, limiting the amount of money consumers have to buy goods such as boats or purchase accessories or services for them, and employers are having trouble finding qualified applicants for some of the skilled jobs they’re offering.

The recruitment problem is an acute one for the recreational marine industry.

Wage growth has been steady as the Great Recession recedes from memory, but it has been slow. The government said average hourly earnings for all employees on private non-farm payrolls rose by 4 cents in June, to $26.25. Year over year, wage growth has been just 2.5 percent.

Economist Stephen Stanley of Amherst Pierpont Securities LLC told Bloomberg that weak productivity and the retirement of high-earning baby boomers might be depressing the national wage data.

Jon Kolko, chief economist for the employment website, told the Los Angeles Times that some of the largest job gains in June occurred in lower-wage sectors, such as health care and temps, and he said that kept wage growth down.

“It’s unclear how much the slower wage growth is due to long-term factors, like productivity slowdown and demographic shifts, and how much of it could be reversed by a tighter labor market and employers bidding up wages,” Kolko said.

Economists traditionally expect increased demand to drive up pay as employers compete for the workers they need amid a shrinking pool of available candidates.

That has not occurred during the nation’s multiyear recovery from the Great Recession. The Federal Reserve touched on that point in the midyear report on the economy that it released July 7.

“Despite the broad-based strength in measures of employment,” the Fed said, “wage growth has been only modest, possibly held down by the weak pace of productivity growth in recent years.”

Jim O’Sullivan, chief U.S. economist for High Frequency Economics, told the New York Times that employment growth is strong enough to keep the jobless rate trending downward.

“The wage numbers are certainly weaker than expected,” O’Sullivan said, “so it keeps alive the whole debate about the relationship between slack and inflation, and how far the Federal Reserve should allow the unemployment rate to fall.”

The Labor Department said in its June jobs report that 1.7 million people have been jobless for six months or longer.

CNBC said many of those people may not have the proper skills. YPO, an international organization of 24,000 young CEOs, and the channel’s CNBC Global CFO Council, an elite group of CFOs from more than 100 public and private companies, tell the business channel that the skills gap is becoming critical.

Of the 40 members of the two organizations that responded to an informal CNBC survey in June, 63 percent had difficulty filling skilled positions during the last 12 months.

���There’s a lot of anecdotes about job shortages in certain geographic areas or for certain types of skills,” Cathy Barrera, chief economic adviser for the job site ZipRecruiter, told the Washington Post. “That’s another mystery as to why exactly the wage growth isn’t accelerating if we’re seeing these sorts of gaps or shortages.”

Barrera told the Post that the reason may have to do with the country’s younger workers, who have struggled to gain job experience. Employers may be recruiting less experienced workers and training them, rather than offering pay increases.

The Post said other economists believe the weak wage growth shows that the economy must expand further before most of those who want work are able to find a job.

Separately last week the Institute for Supply Management’s Manufacturing Index rose to 57.8 percent in June from 54.9 percent the previous month, a development that shows U.S. manufacturers are growing at the fastest pace in nearly three years, MarketWatch reported.

Readings above 50 percent indicate that more companies are expanding than contracting. New orders and production plans rose sharply in June.

The ISM’s non-manufacturing index rose to 57.4 percent in June from 56.9 percent in May. The gauge showed growth in 16 of the 17 industries it tracks.

In the most significant report last week about consumer behavior, major automakers reported lower vehicle sales in June for the fourth month in a row. Reuters said the results were below expectations even though automakers offered sizable discounts and easier loan terms.

Industry consultant Autodata said the industry's seasonally adjusted annualized rate of sales was 16.51 million units, which was the lowest rate since February 2015. It was below Wall Street expectations of 16.6 million vehicles and 2 percent lower than the June 2016 figure.

U.S. consumers continued to favor larger pickup trucks, SUVs and crossovers over cars.

GM said its sales fell about 5 percent from last June, but the automaker predicted that the industry will see stronger sales in the second half of the year than it did in the first.

"U.S. total sales are moderating due to an industrywide pullback in daily rental sales, but key U.S. economic fundamentals clearly remain positive," GM chief economist Mustafa Mohatarem said in a statement. "Under the current economic conditions, we anticipate U.S. retail vehicle sales will remain strong for the foreseeable future."

This week, economy watchers will hear from Fed chairman Janet Yellen, who will testify about the central bank’s semiannual report on the economy before the House Financial Services Committee on Wednesday.

On Friday we will see the Commerce Department’s retail sales report for June and the Consumer Price Index for the same month. The University of Michigan will release the mid-month reading of its Consumer Sentiment Index.

The American public has recently shown itself to be confident that the economy is stable, but they have not broadly increased their spending. The new reports will provide businesses with a valuable mid-year look at whether that attitude is changing.



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