There was a lot of important information on the U.S. economy released this week, but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America rose by 157K payrolls in July, a smaller increase than expected but there was a net upward revision of 59K hires to the prior two reports. As a result, payroll growth has averaged +224K during the past three months, much higher than the 2017 average (+181K) and comfortably above Federal Reserve officials’ estimates for what is needed to keep up with U.S. population gains. Moreover, this was the 94th consecutive month of job growth in America, one of the longest streaks in U.S. history.
As for joblessness, the official unemployment rate (U-3) slid to 3.9 percent in July, and the underemployment rate (U-6) fell to 7.5 percent, both of which are around the best levels in almost two decades. With respect to wage growth, average hourly earnings rose by 0.3 percent last month, in line with estimates but June’s gain was revised lower and the length of the average workweek declined. On the bright side, joblessness at cycle lows and sluggish nominal wage growth together suggest that we have yet to reach full employment, and that the economy therefore still has room to keep growing. Further, today’s headline payrolls gain might have disappointed forecasts, but it is actually quite good for this late in the business cycle and perhaps is a sign that some of the slack left in the labor market is finally being eliminated. More importantly for the markets, today’s job report is likely nowhere near weak enough to derail the Federal Reserve’s plans to continue raising interest rates this year. In fact, the market-implied probability of another hike at the September FOMC meeting rose to 93.6 percent this morning.
Sources: Econoday, U.S. DoL, Twitter, CME, FRBSL
Post author: Charles Couch