Job growth in July was less than expected, indicating a slower pace in the U.S. economy, though perhaps not a long-awaited recession, the Labor Department said Friday.
Nonfarm payrolls rose by 187,000 this month, slightly less than the Dow Jones estimate of 200,000. While the headline figure was a miss, it actually represented a modest gain from June’s downwardly revised 185,000.
The unemployment rate stood at 3.5%, while the consensus estimates that the unemployment level would remain stable at 3.6%. The unemployment rate is just above the lowest level since late 1969.
The average hourly wage, a key figure in the Federal Reserve’s battle against inflation, rose 0.4% this month, for an annual pace of 4.4%. Both figures were higher than the respective estimates for 0.3% and 4.2%. The number of hours worked fell to 34.3.
Another important figure is that the labor force participation rate remained at 62.6%, the fifth month in a row at that level. The rate for those in the ‘prime’ age group of 25 to 64 fell to 83.4%.
The broader unemployment rate, which also includes discouraged workers and those working part-time for economic reasons, fell to 6.7%, down 0.2 percentage points from June. The household survey, used to calculate the unemployment rate, showed a more robust gain of 268,000.
Shares rose after the news, with the Dow Jones Industrial Average Up 200 points in early trading. Government bond yields fell sharply.
The unemployment rate for blacks fell to 5.8%, while the unemployment rate for adult women rose to 2.7%. The rate for Asians fell to 2.3%, down 0.9 percentage points and just below the all-time low in data going back to January 2000.
“The labor market seems to be doing quite well at this point in the business cycle. An unemployment rate of 3.5% is nothing to complain about,” said Satyam Panday, chief U.S. economist at S&P Global Ratings. “It’s a nice downward slide. We would have liked to see wage growth decline a bit, but consumer purchasing power seems to be holding up well.”
Healthcare led to job creation by industry, adding 63,000 jobs this month. Other sectors that contributed included social assistance (24,000), financial activities (19,000) and wholesale trade (18,000). The other services category contributed 20,000 to the total, of which 11,000 came from personal services and laundry services.
The leisure and hospitality sector, which has been a leading sector during much of the Covid pandemic-era recovery, added just 17,000 jobs, in line with a slowing trend after an average increase of 67,000 per month in the first three months of 2023.
The previous months’ totals were revised downwards: June’s number fell to 185,000, down from 24,000, while May’s number was reduced to 281,000, down 25,000 from the previous estimate.
Despite slowing job growth, the economy has proven resilient to a variety of challenges, most notably a series of 11 rate hikes by the Federal Reserve aimed at reducing inflation.
This is a “really, really solid job market,” said Jonathan Stokoe, senior vice president at placement firm Adecco. Going forward, companies will likely focus on “retaining quality employees, scaling up and reskilling,” he added.
Most Wall Street experts are predicting a recession for at least the past year, but growth has managed to remain positive as consumers continue to spend and the services sector recovers from pandemic-related disruptions.
Gross domestic product growth averaged 2.2% annually in the first half of 2023, and the Atlanta Fed’s GDPNow growth tracker points to 3.9% growth for the third quarter.
“Overall, this is still not the labor market picture we would expect if the economy threatens to slow dramatically in the near term, although there are no doubt signs of moderation,” said Rick Rieder, chief investment officer of global fixed income values at asset management giant BlackRock.
Fed officials, including Chairman Jerome Powell, have warned that the full effect of the rate hikes has not yet been felt. Economists worry that the Fed will tighten too much and could push the economy into recession.
Following the payrolls announcement, market expectations that the Fed would hold rates steady at its September 19-20 meeting rose to an 83.5% probability, according to data from the CME Group. Although policymakers have indicated that they expect another quarter of a percentage point increase before the end of the year, markets expect the Fed to be done with this rate hike cycle.
Inflation figures have been moving in the right direction lately. However, the Fed’s favorite gauge still shows prices rising 4.1% annually, or more than double the central bank’s target.
Wages have been part of the inflation picture. Average hourly wages had fallen, although the annual figures are somewhat distorted by comparisons with a year ago, when wages rose.
A Department of Labor poll that the Fed is closely monitoring shows that compensation costs rose 4.5% over 12 months during the second quarter. That level is not consistent with the Fed’s inflation target.
At the same time, fears of a recession on Wall Street appear to be fading. Goldman Sachs has been slowly reducing the chances of a contraction, and Bank of America said this week that it now thinks the US can avoid a recession entirely.