The Labor Department reported on Friday that job growth in July was lower than expected, pointing to a slowing in the US economy, although perhaps not the long-anticipated recession.
nonfarm payrolls That expanded to 187,000 for the month, slightly below the Dow Jones’ estimate of 200,000. Although the headline number was missed, it actually shows a slight gain from the revised 185,000 for June.
The unemployment rate was 3.5%, while the consensus forecast was for the unemployment level to remain stable at 3.6%. This rate is just above the lowest level since 1969.
Average hourly earnings, a key figure used by the Federal Reserve to fight inflation, rose 0.4% for the month, good for a 4.4% annual pace. Both numbers were higher than the respective estimates of 0.3% and 4.2%. Working hours were reduced to 34.3.
Another key statistic, the labor force participation rate remained at 62.6%, the fifth consecutive month at this level. For those in the 25 to 64 “prime” age group, the rate dropped to 83.4%.
The more broad unemployment rate, which includes discouraged workers and people holding part-time jobs for economic reasons, fell to 6.7%, down 0.2 percentage points from June. The survey of households, which is used to calculate the unemployment rate, showed a much stronger gain of 268,000.
The unemployment rate for blacks decreased to 5.8%, while the rate for adult females increased to 2.7%. The rate for Asians fell to 2.3%, a decline of 0.9 percentage points and the lowest rate ever recorded in the January 2000 data.
“The labor market is doing pretty well at this point in the business cycle. 3.5% unemployment rate, you can’t complain about that,” said Satyam Pandey, US chief economist at S&P Global Ratings. “It’s a nice slippery slope. We’d love to see a slight reduction in wage growth, but consumer purchasing power looks to remain good.”
Health care led job creation by industry, with 63,000 jobs added for the month. Other contributing sectors included social assistance (24,000), financial activities (19,000) and wholesale trade (18,000). The other services category contributed 20,000 to the total, including 11,000 from personal and laundry services.
Leisure and hospitality, which has been the leading sector for most of the recovery covid pandemic The era added only 17,000 jobs, which is in line with a slowing trend after averaging 67,000 per month growth in the first three months of 2023.
The previous months’ totals were further revised downwards – June’s count dropped to 185,000, a 24,000 lower revision, while May was cut to 281,000, 25,000 less than the previous estimate.
Even with slowing job gains, the economy has proven resilient against various challenges, most notably a series of 11 Federal Reserve interest rate hikes aimed at reducing inflation.
It’s a “really, really solid labor market,” said Jonathan Stokoe, senior vice president at job placement firm Adecco. Going forward, companies will likely focus on “retaining, upgrading and re-skilling quality employees,” he said.
Most Wall Street experts have been predicting a recession for at least the past year, but growth has managed to stay positive as consumers continue to spend and the services sector recovers from its pandemic-related disruptions.
GDP gain has averaged 2.2% annualized for the first half of 2023, and the Atlanta Fed’s GDPNow tracker is pointing to a 3.9% gain for the third quarter.
“Overall, it’s still not the picture of the labor market that we would expect given the economy is at risk of a dramatic downturn in the short term,” said Rick Ryder, chief investment officer of the U.S. Bank, although there is little doubt that there will be signs of softening. There are signs.” Global fixed income at asset management giant BlackRock.
Fed officials including the chairman Jerome Powell cautioned that the full impact of the rate hike is yet to be felt. Economists worry that the Fed could tighten further and send the economy into recession.
Following the payrolls release, markets expect the Fed to hold rates steady at its Sept. 19-20 meeting, with an 83.5% higher than expected probability, according to data from CME Group. Although policymakers have indicated they expect another quarter percentage point of growth before the end of the year, markets are hoping the Fed is done with this rate-hike cycle.
Inflation data has been moving in the right direction for some time now. However, the Fed’s preferred gauge still sees prices rising at a 4.1% annual rate, or more than double the central bank’s target.
Wages have been a component of the inflation picture. Average hourly earnings were declining, although the annual figures are somewhat distorted compared to a year ago when wages were rising.
The Labor Department estimates that compensation costs that the Fed has been watching closely rose at a 4.5% 12-month rate during the second quarter. That level is not in line with the Fed’s inflation target.
At the same time, fears of a recession on Wall Street seem to be receding. Goldman Sachs is gradually reducing the prospect of a contraction, and Bank of America said this week it now thinks the US may avoid recession altogether.