June Jobs: Disappointment Delivered With A Smile

by: Jeff Opdyke
Summary

America created 220,000 jobs in June. Though Wall Street is pleased, I have to ask: So what?

Once again, many of the new jobs are happening in sectors where pay is well below the median income in America.

Wage growth continues to lag and, to paraphrase Bill Clinton, "It's the jobs market, stupid!"

The new jobs data is out, and I just don't understand why Wall Street gets so excited.

It reminds me of when my son was about four or five years old. I could trade him seven $1 bills for a $20 because, obviously, seven bills are greater than one bill. He was the big winner -- at least in terms of quantity.

Quality of trade -- well, that's a wee bit different.

And that, to me, is the jobs report -- quantity, not quality. It has been the jobs report for a long while now. We're generating jobs, sure. But they're not the highest-quality jobs. They're certainly not jobs that build a middle class. Indeed, wage growth at a 2.5% annual rate remains uninspiring.

So, great: The U.S. economy ginned up 220,000 jobs in June. But so what? They're not the greatest jobs.

Last month, I broke down every job category the Bureau of Labor Statistics tracks, and showed where the jobs are being created and how much those jobs generally pay, based on government data. Once again, I have pulled apart the recent jobs data to see where the economy created jobs in June. And, once again, the data leaves me nonplussed.

I won't detail every single category this time, not delve into the pay (I did that last month, and the pay hasn't changed). The last time was simply to make the point that the devil is, very much, in the details when it comes to the jobs report, and that one must understand those details to understand why the U.S. jobs market is not supportive of a stronger economy.

It also raises the question of "What is the Fed actually thinking?" But more on that in a moment.

Now, onto the June report

The big item, for me: Real jobs -- meaning those we think of as paying a middle-class income -- were few and far between in June.

Mining and logging created just 8,000 jobs.

Construction created 16,000, but this is a highly cyclical industry tried to the fact that new-home sales have been fairly decent of late. The bigger point here is, of course, the fact that the minute home sales slow, many of these construction jobs are toast.

Manufacturing, where Trump is so concerned about the country's weakness, added a barely perceptible 1,000 jobs.

Retail added 8,000 jobs, all the result of hiring in sporting goods, hobby, book and music stores, as well as general merchandisers and food and beverage stores. In terms of pay, those are not middle-class jobs. Hidden in the data is a bigger story, though. Clothing retailers and electronics/appliances stores lost a large number of workers, a sign of the woes afflicting clothiers and electronics sellers. Radio Shack is closing another 1,000 stores, for instance, and a host of clothing retailers, combined, are shuttering thousands of their outlets. This is going to go for a long time as traditional retailers struggle in a world where online sales are taking over -- and online retailers are much more likely to employ robotic technology to fulfill orders.

Transportation and warehousing added a net 2,400 jobs, but all the gain was in ground-passenger transportation and couriers/messengers. Again, not jobs with strong income or advancement potential.

Financial activities added 17,000 jobs. But more than half of those jobs were in real estate and rental/leasing. They certainly pay decently, but as with construction workers, these are tenuous jobs. A whiff of recession -- or worse -- and poof goes the real estate market.

Now we get to the meat of where new jobs are popping up (and, spoiler alert, it's not encouraging):

Professional and business services gave the economy another 35,000 jobs in June. However, more than a third of those jobs (13,400) were in temporary help services -- jobs that may or may not exist tomorrow.

Education and health care generated 45,000 jobs. Half of those (22,600) were in "social assistance," where pay is low. Another 6,600 was in home-health services, where pay is exceptionally low.

Finally, leisure and hospitality kicked in 36,000 jobs. A bit more than 29,000 of those jobs were in the food services and drinking places (burger flipping, order taking, pizza baking, drink making). Meanwhile, arts and entertainment (think: museums and people working at spectator sporting events, such as concessionaires) comprised the rest. Again, not the highest paying jobs in America.

And there you have it: The June jobs report -- a collection of mediocrity, at best.

But here's the big question: Does it matter to the Federal Reserve?

Fed governors continue to talk about a healthy jobs market, but they're clearly talking quantity of jobs not quality. I mean, how could Yellen & Co. possibly think this jobs market is healthy in terms of the jobs we're creating, when the jobs we're creating are too often low-wage, low-skill service-sector jobs? I go back to that game I played with my son -- seven singles for a $20 -- and I get the feeling the Fed is doing something similar with America. It's telling us that the quantity of jobs is the bogey. That's the win. That's the reason interest rates must go up -- because all these (low-wage) jobs will create troubling inflation soon.

That's a bogus bogey.

A nation of restaurant workers, bartenders and home-health aides (all respectable jobs) is not a nation of middle-class consumers.

Yet, it's those jobs America is creating. And along with technological innovation obviating the need for many classes of workers, it's those jobs that help explain why wages are growing -- and will continue to grow -- so nominally.

But, again, does it matter?

At some point, it has to.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.