Will July Employment Report Lift Hopes of Further Fed Rate Cuts?

Friday’s key economic data point came from the Bureau of Labor Statistics (BLS) employment situation report for July. The unemployment rate remained unchanged at 3.7% and the U.S. economy added 164,000 private, nonfarm jobs in the month. Economists had a consensus forecast range for 140,000 to 170,000 new jobs and an unemployment rate of 3.6%.

The employment report for July is good but not great. The economy is rocking along, but not shooting higher. That’s probably good news for investors who are anticipating another federal funds rate cut (or two) this year. Consumer confidence remains solid and inflation is not going anywhere. What’s not to like?

Average hourly earnings for all workers rose by eight cents an hour to $27.98, and average wages for private-sector production and non-supervisory workers rose by four cents to $23.46. Over the past 12 months, average earnings have increased by 3.2%, compared to a consensus estimate of 3.1%.

Total nonfarm payroll employment for May was revised down by 10,000 from an increase of 72,000 to a revised total of 62,000, and the change for June was revised down by 31,000 from 224,000 to 193,000. With these revisions, employment gains in May and June combined were 41,000 less than previously reported. Including the revisions, job gains have averaged 140,000 a month for the past three months.

The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hours to 34.3 hours in July. In manufacturing, the average workweek decreased by 0.3 hours to 40.4 hours, and overtime declined by 0.2 hours to 3.2 hours. The average workweek of private-sector production and nonsupervisory employees declined by 0.1 hours to 33.5 hours.

July’s underemployment rate (the U-6 unemployment rate), which includes those out of work and those working part time but who would like to have full time work, stood at 7.3%, down 0.2 points from June and down by 1.6 points since July of last year.

Stocks traded lower early in Friday’s session, with the Dow Jones industrials and the S&P 500 each down 0.5% and the Nasdaq Composite down about 0.8%. Much of that decline could be attributed to Thursday’s announcement by the president to levy tariffs on all Chinese imports beginning September 1.

The labor force participation rate rose slightly month over month from 63.4% to 63.6% and the employment-to-population ratio rose from 60.9% to 61.1%. Year over year, the participation rate ticked up by 0.1 percentage points and the employment-to-population ratio was unchanged.

The number of people not in the labor force rose from 94.1 million in July 2018 to 94.3 million last month, while the number of discouraged workers dropped from 512,000 to 368,000 year over year in July.

The professional and technical services sector added 31,000 jobs in July while health care added 30,000, the social assistance sector added 20,000 and financial services added 18,000. Manufacturing employment added 16,000 jobs in July, but there have also been recent job losses in the sector.