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 out this morning. Indeed, total nonfarm employment in America rose by 164K payrolls in July, the 106th consecutive month of net job growth and in line with expectations. There was a net downward revision of 41K payrolls to the May and June reports, which pulled the less-volatile 3-month average job gain down to just 140K. That was the worst reading since September 2017, but likely exacerbated by earlier escalations in the trade war (weakness more pronounced in the goods-producing sector), and still more than enough to keep up with U.S. population increases.
Employment growth, though, has clearly slowed over the past year. This is consistent with the gradual decline in job creation we suggested should occur following 2018’s above-trend pace of hiring. Put simply, the monthly gains of 250K or more payrolls should become increasingly rare or else there is still a lot of slack left in the job market. Labor force participation improved in July as the favorable conditions attracted people back into the labor market, and the rate of unemployment held steady because the increase in job seekers (reentrants) roughly offset the solid payrolls gain. Moreover, the rise in participation over the past few years has increased the labor supply and in turn helped explain why wage growth has been muted and the decline in joblessness has slowed despite steady hiring. On the bright side, average hourly earnings exceeded forecasts in July and the June gain was revised higher. Further, income gains remain especially strong among production (non-managerial) workers and in typically low-wage industries, which bodes well for consumer spending, the largest component of U.S. GDP, since consumption behavior for lower-income Americans is more sensitive to changes in earnings.
Sources: Econoday, U.S. DoL, FRBSL
Post author: Charles Couch