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 on July 7 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 in June, but that was because more people were looking for jobs.
“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 big-ticket 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 nonfarm 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 Indeed.com, 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 in the job market to drive up pay as employers compete for the workers they need amid a shrinking pool of 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 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.”
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 past 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.”
In the most significant report in early July 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 sales rate was 16.51 million units, which was the lowest rate since February of 2015. It was below Wall Street expectations of 16.6 million vehicles and 2 percent lower than the June 2016 figure.
For the recreational marine and other industries that sell directly to consumers, the public’s continuing confidence in the economy is a plus.
As Congress focused to the point of distraction on the nation’s health care system, consumers might be expected to fret about the stalemate in Washington and be concerned about whether lawmakers can get anything accomplished that will help them.
The end-of-June reading of the University of Michigan’s Consumer Sentiment Index was the lowest since Donald Trump was elected president, but “the overall level still remains quite favorable,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement that accompanied the figure — 95.1, down from 97.1 at the end of May.
Curtin has been talking since the November election about how the survey’s results reflect the nation’s partisan divisions. Republicans are optimistic and Democrats pessimistic, largely because of their opinions of Trump.
Curtin said the gap in June between Democrats and Republicans was 39 points. The gap was 38 points in February, so little has changed. Independents, who swung to Trump in the election, remain optimistic. The index for them stood at 94.6 at the end of June.
“Surprisingly, the optimism among Republicans and independents has largely resisted declines in the past several months, despite the decreased likelihood that Trump’s agenda will be passed in 2017,” Curtin added.
“The most important policies to consumers are those that directly or indirectly affect their jobs, incomes, or their financial security. Fortunately, increasing uncertainty about future prospects for the economy has thus far been offset by the resurgent strength in the personal financial situation of consumers. The combination of continuing improvements in personal finances and increasing concerns about the economic outlook is typical around cyclical peaks. Nonetheless, the data provide no indication of an imminent downturn, nor do the data provide any indication of a resurgent boom in spending.”
Government reports released at the end of June underscored Curtin’s remarks. The Commerce Department said after-tax income rose 0.6 percent in May after adjusting for inflation, and U.S. News & World Report said that was the measure’s largest monthly gain in more than two years.
Consumer spending, though, rose 0.1 percent in May, its weakest result since February, despite the fact that the Personal Consumption Expenditures index, which the Fed uses to track inflation, fell 0.1 percent. Consumers had increased spending power, but did not buy more.
That did not bode well for second-quarter growth, although economists such as Scott Anderson, chief economist and executive vice president at Bank of the West, remain optimistic that the pay raises consumers are getting will soon translate to increased spending.
“It’s been a long time coming, but more consumers are finally riding the wave of plentiful job opportunities, rising incomes and improving net worth,” Anderson said in a research note that U.S. News & World Report quoted in its story about the May income and spending figures. “Slowing price inflation for retail gasoline, cellphone plans and groceries should provide another boost to consumers’ real spending power [in the second] quarter.
“Despite the weak start to the year and disappointing earnings from some retailers, don’t count out the U.S. consumer. Consumer spending is still on a solid growth path.”
This article originally appeared in the August 2017 issue.