Big surprise in July jobs report

Nonfarm payrolls in the US added 528,000 jobs in July, well above the consensus forecast of 250,000, and the biggest gain since February. Private payrolls posted an increase of 471,000 in July versus consensus expectations of 230,000 and also the biggest gain since February (see first chart). Overall, the jobs report is a positive result.

Despite the strong results, the large predominance of recent data indicates that there are headwinds for the economy. The Fed’s aggressive tightening cycle, almost low-key consumer attitudes, rising initial unemployment insurance claims, and a weak housing market offset some of the positive effects of the strong July jobs report. Moreover, ongoing disruptions in global supply chains are exacerbating the headwinds. Caution is still warranted.

Gains in recent months are still broad. Within the 471,000 earnings in private payroll, private services added 402,000 versus the 12-month average of 424,200 while goods-producing industries added 69,000 versus the 12-month average of 71,100.

Within private service-producing industries, education and health services increased by 122,000 (versus 66,300 on average for twelve months), leisure and hospitality added 96,000 (versus 126,500), and business and professional services added 89,000 (versus 96,100), retail employment increased by 21,600 (versus 33,900), transportation and warehousing added 20,900 jobs (versus 36,500 average), information services gained 13,000 (versus 16,100), and wholesale trade gained 10,500 (versus 14,900; see second graph).

Under the 69,000 increase in commodity-producing industries, construction added 32,000, durable goods manufacturing increased by 21,000, non-durable goods manufacturing added 9,000, and mining and logging industries increased by 7,000 (see second chart). While a few service industries dominate the actual actual monthly salary gains, the monthly percentage changes paint a slightly different picture. The mining and logging industries recently posted strong monthly percentage gains (see third chart).

Average hourly wages for all private sector workers rose 0.5 percent in July, bringing a 12-month gain of 5.2 percent, almost flat since October 2021 (see chart four). Average hourly earnings for private sector, production, and non-supervisory workers rose 0.4 percent in the month and were up 6.2 percent from a year ago, also in line with results over the past 10 months (see chart four). ). The average workweek for all workers was unchanged at 34.6 hours in July while the average workweek for production and non-management remained 34.0 hours.

By combining salaries, hourly wages and hours worked, the index of total weekly salaries for all workers rose 0.9 percent in July and rose 9.7 percent from a year ago; The production and non-supervisory workers index rose by 0.8 percent which is 10.3 percent higher than last year’s level. The total number of the officially unemployed reached 5.670 million in July, a decrease of 242 thousand. The unemployment rate fell to 3.5 percent from 3.6 percent in June while the underemployment rate, indicated by a rate of less than 6 years, remained unchanged at 6.7 percent in July.

The employment-to-population ratio, one of the nearly simultaneous AIER indicators, was 60.0% for July, up 0.1 percentage point but still well below 61.2% in February 2020.

The labor force participation rate fell again, falling 0.1 percentage point in July, to 62.1 percent. This important metric has been trending downward in recent months after hitting a pandemic high of 62.4 in March 2022 and still well below 63.4 percent for February 2020 (see chart five).

The workforce totaled 164.0 million, down 63,000 from the previous month and 623,000 from the February 2020 level of 164.6 million (see chart five). If the participation rate of 63.4 per cent were applied to the current population, an additional 3.4 million workers would be made available.

One of the reasons the labor market remains so tight is the weaker participation rate. Based on the latest Job Opportunity and Employment Turnover Survey (JOLTS), there are 1,092 workers available per opening, up slightly from a record low of 0.957 in April (see chart six). The latest job vacancy and labor turnover survey from the Bureau of Labor Statistics showed that the total number of job vacancies in the economy fell to 10.698 million in June, down from 11.303 million in May; Openings were a record 11.855 million in March.

The number of open jobs in the private sector fell to 9.766 million in June, down from 10.275 million in May and a high of 10.812 million in March. June was also the first month below 10 million since November 2021 and the lowest level since September 2021.

The July jobs report shows that both non-farm and private payrolls posted surprisingly strong gains. However, the upward trend in weekly initial claims for unemployment insurance and the continuing decline in the number of job vacancies and layoffs in June suggest offsetting some of the positive effects of the July jobs report.

Consistently high rates of price increases affect consumer attitudes and may begin to affect spending patterns as well. Moreover, the intense cycle of Fed policy tightening is increasing borrowing costs for consumers and businesses alike. At the same time, the fallout from Russia’s invasion of Ukraine continues to disrupt global supply chains. The outlook remains highly uncertain, and caution is required.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 after more than 25 years researching financial and economic markets on Wall Street. Previously, Bob was Head of Global Equity Strategy for Brown Brothers Harriman, where he developed an equity investment strategy that combines top-down macro analysis with upward fundamentals.

Prior to BBH, Bob was Chief Equity Analyst at State Street Global Markets, Chief Economist at Prudential Equity Group and Chief Economist and Financial Markets Analyst at Citicorp Investment Services. Bob holds an MA in Economics from Fordham University and a BA in Business Administration from Lehigh University.

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