In July the U.S. economy added 187000 fewer jobs than expected. The Labor Department reported on Friday that job growth in July was weaker than anticipated, indicating sluggish economic expansion.
Monthly nonfarm payrolls increased by 187,000, slightly below the Dow Jones forecast of 200,000. Even though the headline number was below expectations, it represented a modest increase from the downwardly revised 185,000 for June.
The unemployment rate was 3.5%, contrary to the consensus forecast that it would remain unchanged at 3.6%. The rate is near its lowest point since late 1969.
Average hourly earnings, a crucial metric in the Federal Reserve’s fight against inflation, increased 0.4% for the month, or 4.4% annually. Both figures exceeded the respective estimates of 0.3% and 4.2%.
The labor force participation rate remained at 62.6% for the fifth month. The rate for those in the “prime” age group of 25 to 64 decreased to 83.4%.
A more inclusive unemployment rate that includes discouraged workers and those holding part-time jobs for economic reasons decreased to 6.7% in July, a decrease of 0.2% from June. The household survey, used to calculate the unemployment rate, revealed a more substantial increase of 268,000.
As a result of the news, the Dow Jones Industrial Average rose 200 points during early trading. Treasury yields plummeted.
The unemployment rate for Blacks decreased to 5.8%, while for adult women increased to 2.8%. The rate for Asians fell to 2.3%, a decline of 0.9 percentage points and just above the all-time low recorded since January 2000.
“At this stage in the business cycle, the labor market is performing rather well. A 3.5% unemployment rate is nothing to complain about, according to Satyam Panday, chief economist for the United States at S&P Global Ratings. “It’s a pleasant cruise down. We would have preferred to see a slight deceleration in wage growth, but consumer purchasing power appears to be holding up well.”
Healthcare dominated all industries’ job creation during the month, adding 63,000 positions. Other contributing industries included social assistance (24,000), financial activities (19,00), and wholesale trade (18,00). Other services contributed 20,000, with personal and laundry services contributing 11,000.
After averaging gains of 67,000 per month in the first three months of 2023, the leisure and hospitality industry, which led to recovery for most of the Covid pandemic, added just 17,000 jobs, consistent with a decreasing trend.
May was reduced to 281,000, a decrease of 25,000 from the previous estimate, and June was reduced to 185,000, a decrease of 24,000 from the previous estimate.
Even though job growth has slowed, the economy has shown resilience in the face of various challenges, most notably a succession of 11 Federal Reserve interest rate hikes intended to curb inflation.
This is a “really, really solid labor market,” according to Jonathan Stokoe, senior vice president of the employment agency Adecco. In the future, companies will likely prioritize “quality employee retention, upscaling, and reskilling,” he added.
Most Wall Street analysts have predicted a recession for at least the past year. Still, growth has remained buoyant as consumers continue to spend and the services sector recovers from pandemic-related disruptions.
Annualized gains in gross domestic product have averaged 2.2% for the first half of 2023, and the Atlanta Fed’s GDPNow growth indicator indicates a 3.9% increase for the third quarter.
“Overall, this is not the picture of the labor market we would expect to see if the economy were in imminent danger of decelerating sharply,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock.
Fed officials, such as Chairman Jerome Powell, have cautioned that the impact of the rate hikes has yet to be felt. Economists are concerned that the Fed could overtighten and cause a recession.
According to CME Group data, following the publication of the payrolls report, market wagers that the Fed will hold rates steady at its September 19-20 meeting increased to 83.5% probability. Even though policymakers have indicated that they anticipate one more quarter-point increase before the end of the year, the markets expect that the Fed will conclude this rate-hiking cycle soon.
Recent inflation data has been trending in the correct direction. However, the Fed’s preferred indicator indicates that prices are still increasing at an annual rate of 4.1%, more than double the central bank’s target.
One component of the inflation equation has been wages. The average hourly wage has been declining, but the annual figures are somewhat distorted by comparing to a year ago when wages were rising.
A Labor Department indicator that the Fed closely monitors indicated that compensation costs increased at a 4.5% annual rate through the second quarter. This quantity is inconsistent with the inflation target of the Federal Reserve.
Moreover, Wall Street’s concerns about a recession are diminishing. Goldman Sachs has been gradually decreasing the likelihood of a recession, and Bank of America stated this week that it now believes the United States could avoid a recession entirely.