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Job Report: What to Watch For U.S. Added 209,000 Jobs in July; Unemployment at 4.3%
(about 3 hours later)
The Labor Department will release the latest figures on hiring and unemployment in July on Friday at 8:30 a.m. Eastern time. The Labor Department released new hiring and unemployment figures on Friday morning. This is the latest official snapshot of the state of the American economy.
Wall Street analysts are looking for a gain of 180,000 jobs, down slightly from June’s showing but still a healthy number given the overall job market. • 209,000 jobs were added in July, somewhat above Wall Street economists’ expectations.
Unemployment is expected to edge down 0.1 of a percentage point to 4.3 percent, where it was in May, the lowest level of the recovery. • The unemployment rate was 4.3 percent. June’s jobless rate was 4.4 percent.
Average hourly earnings are expected to rise by 0.3 percent from June, bringing the rate for pay gains in the last 12 months to 2.4 percent. • Job gains for May and June were revised upward by 2,000.
Here’s what to watch for. Economists had been expecting a gain of 180,000 jobs, so the actual data is a convincing sign that the economy is growing faster than other data has suggested.
With an unexpectedly strong gain of 222,000 jobs reported a month ago, the economy’s strength caught many economists by surprise, especially with only modest increases in gross domestic product and other economic gauges recently. But for months now — indeed, years — the missing ingredient in the job report has been robust wage growth. Although pay has occasionally jumped on a monthly basis, there has been little momentum or follow-through, with average hourly earnings up a decent 2.5 percent on a 12-month basis going into Friday’s report.
While July’s figures are expected to show a gain of 180,000 jobs, a number above 200,000 is certainly possible, especially given a robust service sector and signs of life in the manufacturing sector. What is more, July has a history of being seasonally strong, with hiring above the 200,000 threshold in July for the last three years. In July, average hourly earnings rose 0.3 percent. That compares with an increase of 0.2 percent in June.
Even if the payroll increase is close to consensus, that would still be considered a healthy number given an unemployment rate below 5 percent and a recovery that just entered its ninth year. It is also a sign that the prospect of wage increases is not discouraging employers from taking on more workers. While faster wage growth is certainly good news for American workers, Wall Street worries that signs of real tightness in the labor market might force the Federal Reserve to tighten monetary policy more quickly. Very low interest rates have kept the financial markets buoyant, so any sign that the central bank’s easy-money policies are coming to an end could take some of the air out of stocks.
It is a familiar ritual now for market watchers and economists: a healthy gain in average hourly earnings one month, followed by a lukewarm number the next. For example, earnings rose by 0.3 percent in February, and then by just 0.1 percent in March. A similar pattern followed in April and May. President Trump lost little time in reacting to the report, hailing it on Twitter as “excellent” and saying, “I have only just begun.”
This time, economists are looking for better follow-through. After a 0.2 percent increase in June, the forecast calls for a 0.3 percent gain in July. That would leave the 12-month rate of growth at 2.4 percent, which actually represents a deceleration from December, before President Trump took office. So if higher wages are heralded as good news, keep in mind that there is still some ground to recover. Even before the report was released, Mr. Trump had issued a series of early-morning tweets citing economic progress, including consumer-confidence soundings and plans by Foxconn and by Toyota and Mazda to build American plants.
Why wages are not rising faster given low unemployment is something of a mystery. One theory is that the number of labor-market dropouts after the recession was so great that more people are now seeking work than the figures would suggest. As those workers return, they provide a bit of a labor surplus, so employers do not have to raise wages as fast to retain or attract employees. The Background
The Federal Reserve has signaled that it plans to keep its promise to tighten monetary policy gradually. Most analysts expect the central bank to wait until December to raise rates again, although the Fed will probably start reducing its bond holdings in September, another form of retreat from its stimulus program. For all the debate over President Trump’s tweets claiming credit for a strong economy and the rally on Wall Street, the bottom line is that the labor market is fairly healthy — just as it was in recent years under President Barack Obama. Going into Friday’s report, payroll gains averaged 180,000 in the first half of 2017, compared with 193,000 in the second half of 2016.
As policy makers plot their course, one major factor is inflation, which is linked to wage gains. So a strong job number, and especially a bigger-than-expected increase in average hourly earnings for July, would force investors to be more alert to the Fed’s prospective moves than they have been lately. As a candidate, Mr. Trump pointed to the participation rate, which is at multidecade lows, and suggested that the true unemployment rate is much higher than is reported. In July, the participation rate stood at 62.9 percent, an increase from 62.8 percent in June and level with January, when he took office.
As a result, most traders on Wall Street would prefer to see a healthy increase in hiring that is close to the consensus, rather than another barnburner like June. Although some of the decline in participation is due to the retirement of the baby boom generation, the participation rate for prime age workers has also been weak.
So far this year, the big employment gains have occurred in sectors like health and leisure, which tend to pay less, and business services, which pay more. Gains in the middle tier of jobs, like construction, manufacturing and mining, have been more anemic lately. So while hiring and the overall unemployment rate continue to be important, an even better gauge of how Mr. Trump is handling the economy in the months ahead will be if wages and labor participation both rise.
The housing market has been strong in many parts of the country, which could help the construction sector. Similarly, a lower dollar has benefited exporters, which could increase hiring at factories.
Analysts will also be comparing gains or losses in the retail sector against areas like wholesale trade and transportation. Retail employers have been shedding jobs amid the growth of e-commerce, and experts are looking for any sign that warehouses and other logistics centers are picking up the slack.