United States: Unemployment ticks down in July on robust payroll expansion, while wage growth remains muted
U.S. non-farm payrolls continued to expand in July, reflecting the fundamental robustness of the U.S. economy, which just logged its 94nd consecutive month of job creation, the longest streak on record. Although the economy added only 157,000 jobs in July, which was much lower than the 248,000 new jobs added in June (previously reported: +213,000) and below market expectations of 190,000 jobs, upward revisions to payroll numbers in previous periods yielded a very strong three-month average of 224,000 jobs created each month.
The job market expansion remained largely broad-based, although it softened across most sectors compared to June. Job creation in goods-producing industries such as construction and manufacturing remained similar to June, while the overall slowdown in job growth was felt more acutely in the service sector. In particular, there was a weaker payroll expansion in education and health services in July, and fewer persons were employed in governmental activities. Nevertheless, the unemployment rate ticked down from 4.0% in June to 3.9%. The labor force participation rate remained unchanged at 62.9% in July.
Looking at wage data, developments continue to be muted, with annual wage growth in July stable at June’s 2.7%. As this number remains under the inflation rate, it means that workers did not gain any real purchasing power. In month-on-month terms, average hourly earnings were up 0.3% in July, up from the revised 0.1% increase recorded in June (previously reported: +0.2% month-on-month). The inability of wages to catch up to inflation in recent months is a double-edged sword for the economy. On the one hand, it signals that the strong labor market is only having limited effects on consumers’ purchasing capacity—although it is expected to produce more visible effects in the medium term. On the other hand, it might represent a sweet spot for the Fed, which could be tempted to hike its policy rates faster if wage growth suddenly heated up. While it will remain closely monitored by the Fed in coming months, wage growth will likely not have as big an impact on policy rates as downside risks stemming from the U.S.-China trade dispute.