August 04, 2023 | 09:08
U.S. Payrolls: Slow Landing
American businesses and governments slowed their pace of hiring in July, but the labour market continued to tighten and wages kept rising briskly. Nonfarm payrolls rose 187,000 last month, a little lighter than expected, following a cumulative downward revision of 49,000 in the prior two months. Payrolls growth has downshifted from the 312,000 average of the previous 12 months, though it's close to long-run norms. For a change, government hiring was limited at 15,000, down from the prior month's pace of 57,000. But private sector payrolls rose 172,000, stepping up from June's increase of 128,000, though this is still below the previous 12-month average of 264,000. Health care led the gains (63,000), with construction and leisure/hospitality assisting, while manufacturing shed two thousand positions.
The household survey was somewhat stronger than the establishment report, sporting 268,000 new jobs, though all part-time help, as the number of full-time positions fell by more than half a million. With a growing labour force (152,000) unable to keep up with job growth (due to a fifth straight monthly stall in the participation rate amid an aging population), the unemployment rate slipped back to 3.5%, just a tenth above the half-century cycle low.
Ongoing worker shortages are keeping pressure on wages, with average hourly earnings rising again by 0.4%, holding the yearly rate at 4.4%. After drifting down last year, wage growth appears to have stopped decelerating. That's not what the Fed wants to see, as earnings are still cruising faster than the sub-4% pace that would be consistent with price stability.
One weak spot in the report is that aggregate work hours fell 0.2%, reversing half of the prior month's gain. They are up just 0.3% annualized from Q2's average, suggesting another decent rise in labour productivity will be needed to keep our Q3 real GDP growth call on track at 2.0%.
Partly due to the big drop in full-time positions, the July jobs report comes in with a score of just 48.3 in our grading system, the first time below the neutral 50-mark since early 2021.
Bottom Line: The Fed will take comfort from moderating job growth, but will continue to fret about the tight labour market. So far, the July employment and CPI reports are a wash for the Fed's September 20 decision (we expect no change in rates), placing extra pressure on the August releases to add some clarity.