The Labor Market Remains Strong Despite Slowdown in Hiring
Hiring cools; unemployment drops
The U.S. labor market added 157,000 jobs in July. While this is fewer than many economists projected, upward revisions to the number of jobs added in both May and June, point toward a labor market still in expansion mode. In addition to continued job growth, the unemployment rate once again fell below 4 percent to 3.9 percent; and the underemployment rate declined from 7.8 percent to 7.5 percent. Labor force participation, the rate which measures those working and looking for work, remained steady at 62.9 percent. Annual wage growth also stayed level at 2.7 percent.
Top Takeaways from the Report
The labor market is in line with Fed expectations
In its latest meeting, the Federal Reserve stated that “the labor market has continued to strengthen and that economic activity has been rising at a strong rate”, and this report does nothing to contradict that assessment. While the labor market added 157,000 jobs versus a projected 190,000, the pace of hiring remains solid. Job creation was revised upward in May from 244,000 to 268,000, and in June from 213,000 to 248,000. Taken together, these revisions add 59,000 more jobs than originally reported.
Unemployment remains historically low
Unemployment continues to remain at historically low levels. While the official unemployment rate declined from 4 percent to 3.9 percent, the broader underemployment rate fell even more aggressively from 7.8 percent to 7.5 percent. At 7.5 percent, the underemployment rate is at the lowest-level since May 2001. This is a good sign that than many workers are finding the types of jobs they are looking for.
The Fed will likely raise rates at the next meeting despite the trade spat with China
Almost coincident with the release of July’s employment report, China announced that it would retaliate with tariffs on $60 billion worth of U.S. goods if the U.S. goes ahead with its tariffs on Chinese goods. These back-and-forth trade threats have financial markets somewhat concerned, but their effects could be short lived.
With an economy growing at 4.1 percent and continued strength in the labor market, the Fed has the go-ahead to continue with its planned rate increases. While the Fed has mentioned the trade spats in recent remarks, it seems unperturbed of their effects in the near future.
Workers are still searching for a big raise
Despite an improving economy and strong hiring, annual wage growth has remained tepid. July’s reading of 2.7 percent was in line with expectations, but below what many employees have been hoping for. Many economists have been puzzled by the lack of wage growth given the ongoing pace-of-hiring and the need for many employers to compete for qualified talent. The lack of wage growth has been further exacerbated by the rise of broader inflationary pressures, which have continued to chip away at the purchasing power of workers.
Growth by Select Industry
- Professional and business services added 51,000 jobs in July. The sector has added 518,000 jobs over the past year.
- Employment in leisure and hospitality grew by 40,000 jobs over the last month. The majority of job creation came in the food services and drinking places, which added 26,200 jobs.
- The manufacturing sector continues to impress, adding 37,000 jobs in July. The sector has added jobs for 12 consecutive months.
- The Bottom Line – Despite fears over a potential trade war with China, the U.S. labor market continues to remain on solid footing. Hiring remains robust and the unemployment rate continues to sit below levels suggestive of full employment. The Federal Reserve’s planned rate path of two more quarter-point increases this year remains intact.
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