The July employment report came in below the expected 225,000 print at 215,000, down from the upward revised June 231,000 number, and down from the 260,000 number in May.
The unemployment rate held steady at 5.3%, in line with expectations. The number of Americans not in the labor force rose once again, this time by 144,000 to a record 93.77 million, with the result of a participation rate of 62.6%, the lowest since mid-1977.
This jobs report is being closely watched by the Federal Reserve as one of the last two job reports before their September meeting. The Fed is looking to see “some improvement in the labor market” and Selma Hepp, chief economist at Trulia, says today’s figures will probably cause them to postpone raising interest rates in September.
“ Job growth continues to be driven by improvements in the West where most of the region has been growing ahead of national average. The strength of the housing market, thanks to strong job growth, is apparent in other economic numbers, including residential construction, home sales, and spending. Employment growth could be even stronger in some markets, particularly the San Francisco Bay Area, but employers are running against a limited pool of talent, particularly in tech industries,” Hepp says. “The skills gap is widening in some key growing sectors of the economy.”
There was similar guarded optimism in a client note from Moody’s Analytics.
“Some of the more measured pace of growth is explained by the continuing challenges facing energy-dependent industries and companies with international linkages. Some of the more measured pace of growth reflects the weak growth in wages, which could be tamping down growth in consumer industries,” Moody’s Analytics’ senior economist and managing director, Sophia Koropeckyj says. “Wages for all employees accelerated slightly during the month to year-over-year growth of 2.1%. This pace is consistent with the more comprehensive measure from the employment cost index for the second quarter. Production/nonsupervisory workers fared somewhat worse. Their wages increased by only 1.85% though given very low inflation, this is sufficient to effect modest improvement in living standards.
“The July report does not change the expectation that the Fed Reserve will begin to tighten monetary policy starting in September. However, the modest July report does argue for a slow course, as already articulated by the Fed chair,” she says.
realtor.com Chief Economist Jonathan Smoke added, "This was a strong enough report to increase the odds that the Fed will move in September to officially increase its Federal Funds target rate, which impacts short term interest rates. Indeed, the mortgage market has already risen this year, although recently rates have trended back on mixed economic data signals this summer. Today’s report will likely lead to an increase in 10-year bond yields and mortgage rates and we expect that the 30-year fixed conforming rate could end the year as much as 40 basis points higher than at current levels."
"As the market focuses its attention on higher rates, which will negatively impact affordability, we’re nonetheless likely to see an increase in demand for homes in the slower fall and winter months because more jobs and higher wages will have more of an effect on housing in the short- to medium-term. Moreover, even with an increase, rates remain at incredibly low levels from a historical perspective,” Smoke continued.
Among the unemployed, the number of new entrants decreased by 107,000 in July. New entrants are unemployed persons who never previously worked.
The civilian labor force participation rate was unchanged at 62.6% in July, after declining by 0.3 percentage point in June. The employment-population ratio, at 59.3%, was also unchanged in July and has shown little movement so far this year.
In July, 1.9 million persons were marginally attached to the labor force, down by 251,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.
Among the marginally attached, there were 668,000 discouraged workers in July, little changed from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force in July had not searched for work for reasons such as school attendance or family responsibilities.
The average workweek for all employees on private nonfarm payrolls edged up by 0.1 hour to 34.6 hours in July. The manufacturing workweek for all employees also edged up by 0.1 hour to 40.7 hours, and factory overtime was unchanged at 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours.
In July, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.99. Over the year, average hourly earnings have risen by 2.1%. Average hourly earnings of private-sector production and nonsupervisory employees increased by 3 cents to $21.01 in July.