Nonfarm payrolls rose 209,000 in July, surpassing expectations, according to Bloomberg. June payrolls were furthermore revised up from 222,000 to 231,000. Thus, the overall change (July data + net revisions) was 211,000. Measuring the ongoing temperature of the labor market, the three-month average was little changed in July, rising from 194,000 to 195,000, albeit an improvement from a 134,000 pace in May. The longer-term 12-month average, however, actually declined a bit, falling from 187,000 to 180,000 at the start of the third-quarter.
In the details, private employment (sans government) rose 205,000 in July, the second consecutive month of improved momentum from a recent low of 153,000 in May. Goods-producing payrolls rose 22,000 in July, thanks in part to a 6,000-job rise in construction and a 16,000 gain in manufacturing payrolls.
{mosads}Service producing payrolls, meanwhile, gained 183,000 in July, a 10-month high; leading the bounce at the start of third quarter were the usual suspects: Business services payrolls posted a gain of 49,000 payrolls, thanks to a 15,00-job bump in temporary services payrolls, education and health payrolls jumped 54,000 and leisure and hospitality, a frequent contributor to headline growth, rose by 62,000 payrolls.
Government payrolls increased by 4,000 in July with the improvement entirely at the state and local level.
What about the unemployment rate? The civilian labor force increased by 349,000 in July, the second consecutive month of improvement. The participation rate, as a result, rose one-10th of a percentage point to 62.9 percent, a three-month high. Household employment, meanwhile, increased by nearly the same amount, up 345,000 in July.
This was enough, however, to pull the unemployment rate down minimally from 4.357 percent to 4.350 percent, which, because of rounding, resulted in an apparent larger decline from 4.4 percent to 4.3 percent.
Arguably most important was the wage number. Average hourly earnings rose 0.3 percent in July, the fastest pace since February — that’s the good news. The not-so-good news is that, year-over-year, wage growth remained stagnant at 2.5 percent for the fourth-consecutive month.
Wage growth had been improving at the start of the year, however, since the end of the first quarter. Momentum has turned to the downside with the annual pace of earnings falling back toward the longer-term trend of 2.1-percent growth established in the aftermath of the Great Recession.
Here’s the bottom line: The headline rise in nonfarm payrolls marks a welcome return to more consistent improvement in monthly job creation, with four of the past six months rising above 200,000.
Furthermore, a continued decline in the jobless rate (albeit the result of essentially a rounding error this month) suggests employers are continuing to expand and absorb unemployed workers despite clear headwinds stemming from a lack of domestic fiscal stimulus and still-tepid global growth. Or at least that’s the glass half-full perspective.
On the other hand, from a more glass half-empty perspective, while topline job creation appears to be on more solid footing as of late, additional months of steady job creation has done little to improve wages. Sure, the more precipitous decline in earnings growth from the second-quarter appears to have been arrested, but stagnant wages are hardly an indication of improvement or something to celebrate.
At this point, the question must evolve from how many jobs are being created each month, to what types of jobs are being created each month? Employers are clearly still heavily reliant on part-time, temporary and low-wage labor.
And of course, as wage pressures subside, consumers are left treading water, pulling back on their monthly purchases with waning spending power. As a consumer-based economy, the fastest way to derail growth is to compound pressure on an already-fragile consumer base.
From the Fed’s perspective, amid the more hawkish lean as of late, the committee is no doubt focused on the continued gains in topline employment and that alone should be enough to justify further action despite clear signs of disinflation. After all, for months now, take your pick — the consumer price index (CPI) producer price index (PPI) or the personal consumption expenditure index (PCE) — have all slowed from recent peaks to multi-month or, in some cases, multi-year lows.
The latest July employment report, with its stagnant wages, simply reinforces the notion of a lack of price pressures throughout the economy. Thus, despite solid headline job creation, some Fed officials should be questioning the need for a more rapid rise in rates at this point amid a clear downward trend in prices.
It all comes down to the data. But the data will only serve to impact Fed policy decisions in so much as the latest reports sway policy officials away from their longer-term view of continued improvement. Despite indications of disinflation in the economy, Fed officials appear convinced that inflation is only “temporarily” subdued.
With nearly seven weeks to go before the September meeting, the latest employment report will likely serve to fuel the Fed’s intentions to squeeze through at least one additional hike by the end of the year, however unjustified.
Lindsey Piegza, Ph.D., is the chief economist for Stifel Fixed Income. She has had her research published in Harvard Business Review and in textbooks for Northwestern University’s Kellogg Graduate School of Management. She’s a regular guest on CNBC, Bloomberg, Fox News and CNN.
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