Categories Analysis, Markets

Job growth slows in July; Unemployment rate near historic low

A day after the Federal Reserve sounded caution on the rising inflationary pressure, there is some encouraging news from the labor market that shows the economy is moving closer to full employment. Unemployment eased last month amidst robust hiring activity, while the softness in wage growth persisted contrary to expectations for a decent increase.

Data published by the Labor Department Friday showed the US private sector added 157,000 new jobs in July, which however fell short of economists’ forecast. The payroll numbers for the preceding two months were revised up, when the rate of job growth was much higher. Among the major economic sectors, employment growth was the most pronounced in manufacturing, professional services and hospitality.

Unemployment rate dropped to 3.9% in July from 4% in June as expected, moving closer to the historic lows seen earlier this year. The average hourly compensation of employees edged up 0.3% sequentially to $27.05 – higher by 2.7% compared to last year.

In the backdrop of the rising living costs, the muted wage growth looks particularly insignificant. However, the uptick in the overall economic activity and the shining labor market show that wage growth will gather steam in the near term. Moreover, reactions from employers indicate they are facing difficulty in filling vacancies due to non-availability of the right candidates.

Recent statistics revealed that gross domestic product grew at the fastest pace in nearly four years in the second quarter, aided by strong exports and consumer spending, though many experts question the sustainability of the 4.1% growth rate.

Dampening the upbeat mood, separate data earlier this week revealed that the number of jobless claims increased in the most recent week, reversing the declines registered in the preceding weeks. Another factor that casts doubts over the sustainability of the positive momentum in the job market is the trade tension between Washington and Beijing, which is expected to escalate in the coming months considering the tit-for-tat tariffs slapped by the two sides.

While holding the benchmark interest rate unchanged earlier this week, the central bank said the rate would be hiked at least two times before year-end.

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