US Labor Market Continues to Slow as Economy Adds 187,000 New Jobs
US Labor Market Continues to Slow as Economy Adds 187,000 New Jobs

By Andrew Moran

The U.S. economy added 187,000 new jobs in July, according to the Bureau of Labor Statistics (BLS), falling short of the consensus estimate of 200,000 and making it the second-weakest jobs growth under President Joe Biden.

The unemployment rate dipped to 3.5 percent, down from 3.6 percent, and matched the market forecast. The labor force participation rate held steady at 62.6 percent.

Average hourly earnings were unchanged at a 4.4 percent increase year-over-year and 0.4 percent month-over-month.

Health care and social assistance led the way last month, adding 63,000 and 24,000 new positions, respectively. This was followed by financial activities (19,000), construction (19,000), wholesale trade (18,000), and leisure and hospitality (17,000). Government payrolls also increased by 15,000.

Professional and business services shed 8,000 jobs, while the manufacturing sector lost 2,000 workers.

The change in total nonfarm payroll employment for May was revised down by 25,000 to 281,000. It was also adjusted for June by 24,000, sliding to 185,000. So far this year, every jobs report has been revised lower.

Many of the key labor metrics were flat. The number of people employed part-time for economic reasons but would have preferred full-time employment was flat at 4 million. The number of individuals not in the labor force but wanting a job was also unchanged at 5.2 million. The number of people working two or more jobs edged up to 8.113 million, up from 7.995 million.

President Joe Biden issued a statement praising the July jobs data.

“Unemployment near a record low and the share of working-age Americans who have jobs at a 20-year high: that’s Bidenomics,” he said.

Markets and the Fed

The U.S. financial markets hardly reacted to the July jobs report, with the leading benchmark indexes up about 0.1 percent. The Treasury market was mixed as the 10-year yield was down about a single basis point to 4.18 percent. The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, fell below 102.50 where it has hovered for most of the trading week.

Bryce Doty, the senior vice president and senior portfolio manager at Sit Investment Associates, called this “an unusual jobs report,” alluding to the smaller-than-expected employment gain, higher wage growth, and a lower unemployment rate.

Whether this will bolster the odds of the Federal Reserve raising interest rates at the September Federal Open Market Committee (FOMC) policy meeting remains to be seen. There is still plenty of data coming out, from inflation to more labor developments.

But Mr. Doty thinks the “offsetting strength and weakness likely results in very little impact on what the Fed will do.”

“With material input inflation less than 1%, the blended increased costs for many companies will be near the Fed’s 2% target,” he wrote. “If it wasn’t for Fitch’s downgrade of U.S. debt, we would expect 2 year yields to decline some on this jobs data.”

According to the CME FedWatch Tool, the futures market is pricing in no rate hike next month.

State of the US Labor Market

Heading into the July NFP report, labor data were mixed.

In June, the number of job openings fell for the second consecutive month, coming in at 9.582 million, down from 9.616 million in May. The number of job quits also declined to 3.772 million, down from 4.067 million in the previous month.

The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) for July showed that the employment sub-index deepened into contraction territory.

“Demand remains weak but marginally better compared to June, production slowed due to lack of work, and suppliers continue to have capacity. There are signs of more employment reduction actions in the near term to better match production output,” said Timothy R. Fiore, the ISM Chair for the Manufacturing Business Survey Committee, in the monthly reading.

The ISM Services PMI highlighted a similar trend of slowing employment levels in the industry.

But layoffs have appeared to level off. According to new data from Challenger, Gray & Christmas, Inc., U.S.-based employers announced nearly 24,000 job cuts in July, down from 40,709 in June. In the first seven months of 2023, employers have announced plans to slash approximately 482,000 jobs, the highest January-to-July total in three years.

“The job market is remaining resilient in the face of rising interest rates, as consumers continue to spend and inflation falls. Companies, weary of letting go of needed workers, are finding other ways to cut costs. Many have slowed hiring, but wages continue to rise, particularly for the lowest-wage earners, for the moment,” said Andy Challenger, a labor expert and Senior Vice President of Challenger, Gray & Christmas, in a statement.

Initial jobless claims inched higher (pdf) as the number of Americans filing for first-time unemployment benefits totaled 227,000 for the week ending July 29. Continuing jobless claims rose to 1.7 million, while the four-week average, which strips the week-to-week volatility, eased to 228,250.

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