U.S. employment data beat analysts' estimates in July, adding 255,000 jobs to the U.S. economy, and increasing hourly wages by 0.3%. This sent stock markets and the dollar higher, and increased the odds of an interest rate hike by the Fed before the end of 2016.  In a report  published today, Bank of America said that if other economic data continue to improve on top of the jobs number,  a December rate hike is likely. "The Fed will have sufficient reason to hike this year," the report said.

The Bigger Picture

This, however, is not the entire picture: the headline unemployment rate remained at 4.9%, but expectations were for an improvement to 4.8%. At the same time, the "real" unemployment rate, which accounts for discouraged and temporary workers, rose to 9.7% from 9.6% the month earlier.

Why Real' Unemployment Matters

Following the Great Recession of 2007-09, the unemployment rate shot up, causing many workers to become discouraged and stop looking for work. Since the headline unemployment figure (known as U3 unemployment) does not count in its measure of people no longer seeking work, those discouraged workers were no longer counted as officially unemployed. A far more inclusive measure of joblessness in America is the U6 unemployment figure, which includes all of those unemployed in the headline number plus those discouraged workers and people forced to work temporary jobs when they'd much rather full-time work. 

In June, the U6 fell to 9.6%, the lowest level since 2008, but still far above the pre-recession lows. Still, it is worth noting that on a relative basis, the U6 has fallen more steeply than the U3, indicating that there have been proportionally less discouraged workers over the past few years.

The Bottom Line

Today's positive jobs numbers focused on the 255,000 jobs the economy created in July, beating expectations. However, the headline unemployment rate held steady at 4.9% while the more inclusive U6 number ticked up slightly. Overall, the jobs picture is looking brighter in America, but one still has to consider the large amount of discouraged workers still out there, with still a way to go to get to pre-crisis levels.

 

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