Hiring remains hot while unemployment is at its lowest for 53 years; Dow Jones Falls
The US economy added 528,000 jobs in July as the unemployment rate fell to 3.5%. The stronger-than-expected jobs report shows the Federal Reserve still has some work to do to cool the labor market. Following the data, the Dow Jones Industrial Average fell.
The average hourly wage increased by 0.4% over the month against expectations of 0.3%. Annual wage growth of 5.2% exceeded forecasts of 5.0%.
Private sector payrolls rose by 471,000 in July, while government jobs increased by 57,000.
Wall Street expected July’s jobs report to show a gain of 250,000 jobs, including 220,000 in the private sector. The unemployment rate was expected to remain at 3.6% for a fifth consecutive month. Job gains for May and June have been revised up by a combined total of 28,000. The originally reported gain of 372,000 jobs in June has been revised to 398,000.
While wage gains are still historically strong, they are nowhere near keeping up with inflation. The annual CPI inflation rate reached 9.1% in June.
Key employment and wage figures come from the Department of Labor’s monthly survey of employers. A separate household survey, which is used to derive the unemployment rate, showed the ranks of employed rose by 179,000 more moderately in July.
Dow Jones, Treasury yields react to jobs report
After the jobs report, the Dow initially sold, but eventually closed 0.2% higher in Friday’s stock action. The S&P 500 rallied to close just 0.2% while the Nasdaq lost 0.5%.
Through Thursday, the Dow Jones rebounded 9.5% from its June 17 closing low, trimming its loss to 11.1% from its January 4 closing high. The S&P 500 has rebounded 13.2% since mid-June, climbing within 13.4% of its all-time closing high. The Nasdaq composite is up 19.5% from its bear market low, but remains 20.8% below its all-time high.
Markets are now pricing in a 68.5% chance of another 75 basis point move at the September 20-21 Federal Reserve meeting. Prior to the July jobs report, markets saw around a 60% chance of a half-point rate hike and a 40% chance of a 75 basis point hike.
However, the stock market rallied as Wall Street bets that the US economy will be weak enough for the Federal Reserve to switch from raising rates to lowering rates by mid-2023.
Prospects of slow growth and a possible recession had seen the 10-year Treasury yield fall sharply from its mid-June high of 3.48%.
After the jobs report, the 10-year Treasury yield jumped 16 basis points to 2.84%.
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Job report details
The leisure and hospitality sector added 96,000 jobs. Factory employment increased by 30,000.
Construction jobs increased by 32,000. Health care and social assistance payrolls increased by 97,000. Retailers added 22,000 jobs, while transportation and warehousing jobs increased. increased by 21,000.
The household survey showed that the ranks of employed people rose by 179,000. The number of people participating in the labor force, that is, working or actively seeking work, fell by 63,000.
The share of the working age population (16+) participating in the labor force fell to 62.1%.
According to the monthly household survey, 5.67 million Americans are unemployed. This is now less than the 5.8 million unemployed in February 2020, before the Covid lockdown.
Jobs report puzzle
It seems possible that July’s uniformly strong jobs report is overstating the strength of the labor market. The jobs data is subject to revision, after more comprehensive data is collected months later. While it’s unclear if any major overhauls will take place, here are some dissonant data points to keep in mind. Curiously, over the past four months, the household survey shows the number of people working has fallen by 168,000, even as the employer survey shows an increase of 1.68 million.
Initial jobless claims soared 57% from mid-March lows of 260,000 in the week to July 30.
An IBD analysis of daily Treasury returns indicates a sharp deceleration in the growth rate of federal income and employment taxes withheld from workers’ paychecks. In the 10 weeks to July 22, growth in these tax revenues from a year ago slowed to 7.6% from 12% through mid-May.
By comparison, the Labor Department’s economy-wide wage index rose 9.7% from a year ago in June. This aggregate wage figure reflects the growth in hourly wages and the increase in total hours worked across the economy.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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