The hotly anticipated non-farm payroll report from the Bureau of Labor Statistics (BLS) was released before today’s opening bell, and the headline number came in well below expectations: 157K for the month of July. Analysts had been expecting between 190K-215K new jobs for the month. The new Unemployment Rate fell 10 basis points to 3.9%, in-line with expectations and the lowest we’ve seen since May.
However, revisions to the previous two months were fairly extraordinary — +35K in June to 248K and +24 in May to +268K. Average out the past three months, even with the disappointing figure from July, and we get 224K — still very much within the narrative of an historically strong domestic labor market.
By industry, Professional/Business Services led the pack with 51K new job additions in the month, followed by Manufacturing at 37K — a hallmark, by the way, of today’s “Trump economy” — and Leisure/Hospitality ay 40K. Importantly, pointed out on CNBC’s “Squawk Box” this morning, Retail gained 7K new jobs in July, including a loss of 32K in the Toys & Hobby sector, which can be directly related to the bankruptcy and liquidation of Toys R Us stores. So if you’re looking at this 157K number and wondering what happened, add those 32K jobs back, and you’re right at the range of expectations for the month.
Average Hourly Wages remained tepid overall for the month, rising another 7 cents or 0.3%. Year over year, wage growth sits at +2.7%. This remains an anomaly when we compare other eras of record jobs numbers, which always saw wages push much higher at this stage of a U.S. labor market.
In fact, wage growth isn’t even keeping up with the overall rate of inflation, which is quite strange when one considers that, in a report from the National Federation of Independent Business, a record number of small business jobs remain unfilled, especially in Construction, Manufacturing and Wholesale Trading. Will we continue to see vacant job openings or will wages finally rise high enough to fill them?
The Labor Force Participation Rate remained steady at 62.9%, while the U-6 number (aka “real” unemployment, including “employable” individuals not [yet] considered part of the labor force) came in at an extremely low 7.5%. We now see stay-at-home moms re-entering the workaday world, for instance, on a regular basis. And, as we saw in yesterday’s new jobless claims, the current rate of unemployment claims is the lowest we’ve seen in roughly half a century.
This all said — and it’s all good news despite the disappointing headline number — there is the basic fact staring us in the face that new jobs fell by almost 100,000 from June to July. Part of this may reflect normal seasonality (fewer job openings in summer months, historically), and it’s quite possible the July numbers will be revised significantly upward in subsequent months.
But we should also note that as trade war fears lead to uncertainty, we may see a cooling off of new jobs added to the labor market until companies are secure their businesses won’t be negatively affected in a meaningful way. It will for sure take more than one month of lower-than-expected job additions to give this impression, but if we get to September and we continue to see these numbers tick down, it will be something well worth considering.