Today's payrolls report for June looks quite good, for several reasons. First, the private sector created a net 202,000 jobs last month, well above expectations. Second, payrolls increased by quite a bit more in April and May than initially estimated, the Labor Department reports today. May's initially reported private-sector advance of 178,000 jobs, for instance, is now estimated as an increase of 207,000. Third, the year-over-year pace of private payrolls growth is rising, which suggests that the positive momentum in the labor market is strengthening and will roll on for the near term.
As always when it comes to one economic report, it's best not to read too much into the update du jour. Revisions have been helpful lately, but they can just as easily turn negative the next time. On a somewhat more reliable note, the moderate rate of jobs creation remains intact, as today's update reminds us. Last month's gain of 202,000 is slightly above the average for the past 12 months. Although the pessimists like to cherry pick one or two bad months to advance their cause, the broad trend has remained fairly consistent (once you look beyond the short term noise). That's been true for some time and it remains true in today's release.
In fact, the annual pace of growth in private sector jobs inched higher last month to 2.1%. That's the third consecutive increase in the year-over-year rate and the highest since June 2012. The main takeaway is that the economy continues to expand and recession risk remains low. That's the message in today's payrolls news, and it has also been the message in broader reviews of the economic and financial data (see here and here, for instance).
Will we be hearing mea culpas from all the analysts who insisted, month after month, that the economy was falling into a recession? Don't hold your breath. In a perfect world, the people who told us that the economy was slipping over the cyclical edge would fess up and reform their obviously flawed models. Instead, what you're likely to hear is silence. The perma bears will bide their time, conveniently ignoring their mistakes, waiting for the next worrisome economic report. At that point, they'll leap out of the bushes and again yell that the end is near.
One day they'll be right, of course, just as a broken clock is right every 12 hours. But a more robust level of business cycle analysis requires less drama and more analysis, preferably of the econometric variety. There's no secret sauce, but a reasonable start that offers a strong benchmark for evaluating the big-picture trend as currently known consists of looking at a broad and carefully diversified set of indicators, which is the basic goal of The Economic Trend and Momentum indices.
Nothing's perfect, of course. But it's important to recognize that in a world where every model is flawed, not every flaw is created equal.