US labor market: Good June figures but overall deceleration in the employment trend

The official Employment Situation Summary, published last Friday by the US Bureau of Labor Statistics (BLS), confirmed the picture of a still robust employment trend. The fact that the unemployment rate is likely to decline at a far slower pace this year than in the previous year is essentially commensurate with our expectations and has therefore not come as a surprise. However, the June report also confirms that the employment trend in the USA appears to have passed its peak. This year so far, the monthly average increase in persons employed has amounted to around 170,000 compared with the same period a year earlier when the number of persons employed grew by around 220,000 persons. In 2014 the monthly increase even came close to a quarter million in the first half-year.

Against this backdrop, the increase in the unemployment rate from 4.7 to 4.9 percent should not give cause for undue concern. The number of unemployed persons has risen, but this mainly concerned the number of persons only recently searching for a job. The increase in the official rate primarily reflects the fact that the labor supply has risen noticeably in June by more than 400,000 persons compared with the previous month so that, for this reason, not all these persons will have immediately found a job. However, a really positive point is that the number of discouraged workers, i.e. persons not currently looking for work because they believe no jobs are available for them, has been in decline for the sixth straight month. The momentum on the US labor market is still quite sufficient to also integrate the "silent reserve" of unemployed individuals who are immediately available to take work. This is also expressed by the fact that, unlike the official unemployment rate, the alternative unemployment rate known as U-6 and also published by the BLS declined in June from 9.7 to 9.6. In order to understand the significance of this figure: the long-term average of this rate is 10.7 percent. The calculation of U-6 makes allowance for all persons who have ever worked but who in recent months were not registered as job-seekers. This comprehensive ratio therefore shows that in the USA the phenomenon of unemployment continues to recede.

There are still no signs of a visible wage trend - this is evidently still being prevented by the flow of persons returning to jobs. Wages have increased in monthly average terms by only a slight 0.1 percent following an increase in May of 0.2 percent.

Surveys in the service sector indicate that this sector will continue fuelling the job motor in the United States in the months ahead. Furthermore, an improvement in order intake and the generally more upbeat sentiment also signal the prospect of a small contribution from the manufacturing sector which, in the recent past, has been characterized by job cutbacks. We were particularly surprised by the still slightly declining number of construction employees, given the robust state of the construction sector. All in all we expect the unemployment rate to continue trending downwards.