The lowest U.S. unemployment rate in 41/2 years should be cause for celebration, but party hats stayed on the shelf Friday.
The jobless rate sank in July to 7.4 percent from 7.6 percent in June, but ho-hum job growth and a decline in the size of the labor force dampened enthusiasm.
“I liken it to being on a treadmill,” said Dan Heckman, national investment consultant for U.S. Bank Private Client Reserve in Kansas City. “We’re making some progress but not going anywhere.”
Despite small gains, the U.S. labor market is mostly running in place.
Employers added just 162,000 non-farm payroll jobs in July, a smaller number than the 200,000-a-month average earlier this year. The U.S. Bureau of Labor Statistics also revised down by 26,000 the net job gain previously reported for May and June.
As notable as the paltry job creation rate was the nature of the new jobs — many were part-time and low-pay.
Part-time employment rose by 174,000 in July, compared with a gain of just 92,000 full-time jobs. Many of the new jobs were in the restaurant, retail and lodging industries.
The part-time trend helped push lower the length of the average workweek on private non-farm payrolls to 34.4 hours, a 0.1-hour reduction from June.
It also helped shove down average hourly earnings for all employees on private payrolls. That measure edged 2 cents lower to $23.98, reversing part of a 10-cent increase in June.
“The dip in the hours worked and the decline in hourly earnings shows that the jobs that are being created are not generating much income,” said Steven Ricchiuto, chief economist for Mizuho Securities USA.
That’s important in a national economy 80 percent fueled by consumer spending.
Economists said they were concerned that the unemployment rate fell largely because of a decline in the labor force. People who stop working or stop looking for work no longer are counted as members of the labor force.
If labor force dropouts are retired and well-off, or otherwise wealthy enough to afford discretionary spending, that’s fine. But if they’re long-term unemployed or 20-something graduates living with their parents, that’s an economic drag.
The data showed that the labor force as a share of the working-age population slipped to 63.4 percent from 63.5 percent in June.
Gary Burtless, a Brookings senior fellow in economic studies, estimated that one-third of the employment-to-population decline was due to retirements by aging baby boomers. Other economists say retiring boomers could account for up to half of the labor force shrinkage.
But even though a smaller share of the population is working or wants to work, payroll employment “remains lower than at the December 2007 start of the recession,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities, and that’s “well below what’s required for full employment.”
There were more than 137.6 million employees on non-farm payrolls in December 2007, compared with about 135.6 million in July this year.
Job creation has averaged about 200,000 a month since January, but the average gain for the last three months alone was lower at 175,000.
The lackluster jobs report was mostly shrugged off by the stock market. The Dow Jones industrial average closed Friday at 15,658.36, up 30.34. The Nasdaq closed at 3,689.59, up 13.85.
The Labor Department estimated that 988,000 working-age Americans were “discouraged,” meaning they didn’t look for work in July because they didn’t think they could find a job. That was about 136,000 more than were considered discouraged in July 2012.
Analysts pointed out that July job numbers are routinely difficult to draw conclusions from because of the large number of teachers not working in the summer and other seasonal effects.
Economists advise waiting until the August jobs report to draw trend conclusions. The August report will provide one more month of labor market information before the next policy meeting of the Federal Reserve, a meeting at which board members are expected to discuss continuing the Fed’s economic stimulus policies.
The jobs report, though so-so, drew some positive reactions.
“The fact that we have been able to produce new jobs at this rate, despite the exceptionally strong headwinds of higher taxes and sharp government spending cuts this year, is a testament to the economy’s much improved underlying fundamentals,” said Russell Price, senior economist at Ameriprise Financial.
Price also noted that slow expansion in Europe is aiding the U.S. economy as trading partners ease out of austerity.
Sophia Koropeckyj, managing director at Moody’s Analytics, added: “The dreaded impact of sequestration has yet to materialize, and federal government payroll, excluding postal workers, actually increased during the month.”
Koropeckyj added that the share of long-term unemployed — those looking for work for six months or more — also has been falling. That share was estimated at 37 percent of the unemployed in July, compared with 40.6 percent a year earlier.
Looking forward, a survey by the Society for Human Resource Management indicated that hiring is expected to be strong in August compared with a year ago. About 56 percent of manufacturers and about 41 percent of service-sector employers said they expect to hire workers this month.
Economists hope some of that hiring improves the dismal jobless rate for the 18- to 29-year-old population, the group that should be establishing careers and building a lifetime earnings base. Their unemployment rate is 11.4 percent, four percentage points higher than the population at large.
“After a slight improvement in 2011, young adults are actually working full time at a lower rate today than they were in 2010, one year after the recession officially ended,” said Rory O’Sullivan, policy and research director at Young Invincibles, an advocacy organization for the millennial generation.