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July 6, 2018 Blog 2 min read
Job creation picked up in June, but a surge in the labor force pushed the unemployment rate back up to 4.0%. Not only is that not a sign of weakness, but labor force growth could help to sustain the expansion.

7-6-18 Employment Chart

If you’re looking for a good story in the June job report, you can certainly find it. If you’re looking for bad news, you’re probably able to find that as well. There’s something for everyone to point to in support either a glass half full or empty view; it really depends on how you choose to look at the glass.

The unemployment rate moved up to 4.0% in June, an increase of 0.2% from the cyclical low of 3.8% last month. That rise occurred despite the fact that the economy created an estimated 213,000 new jobs in June, and upward revisions to the preceding two months stacked another 37,000 jobs on top of that. The combined increase of 250,000 is very good, easily beating expectations for a gain of around 200,000.

The fact that the jobless rate moved up even as job creation remained solid is not a byproduct of a weakening job market, but of an increasing number of individuals entering the workforce. In June, the civilian labor force grew by about 600,000 people, of which 500,000 immediately entered the ranks of the unemployed.

Broadly, it appears that the strength of the jobs market and the increasing availability of jobs is drawing potential workers from the sidelines. More people are looking for work, as it’s clear that finding a job isn’t nearly the challenge that it was for many years. Some may point to the rise in joblessness as a negative sign about the economy; they’re wrong.

If there is a part of the jobs report that remains a source of frustration for many, it’s the lackluster pace of reported wage growth. Average hourly earnings grew by just 0.2% in June and 2.7% over the past year. Neither is worthy of popping the corks on celebratory champagne bottles by any stretch.

Increasingly though, the divergence between average hourly earnings and other anecdotal evidence and quantitative gauges of wage growth shouldn’t be overlooked. It isn’t readily apparent in the jobs report, but wage pressures are building and should be expected to continue to rise. Nonetheless, it’s still somewhat surprising that average hourly earnings growth hasn’t picked up and remains a key figure to monitor.

The bottom line is that job market conditions remain strong, with plentiful jobs drawing more individuals into the workforce. While it might dampen downward momentum in the jobless rate, it could provide an additional tailwind for an economy in the latter stages of expansion. An additional source of workers could be just what the economy needs to keep the economy in an expansionary mode for some time to come.

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