July Payrolls Upbeat On All Counts: The US Unemployment Rate at 16-year Low

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The much-anticipated payrolls report for the month of July came with a lot of positives. The data helped the US dollar to recover from the strong losses that have been mounting.

In a week that saw the ISM’s manufacturing and non-manufacturing PMI’s both coming out weaker than expected, the July payrolls report was a welcome change.

The US employers were seen hiring at a healthy rate in the month of July. This sent the US unemployment rate to a 16-year low at 4.3%, as expected by economists. In June, the unemployment rate was at 4.4%. The unemployment rate had fallen to 4.3% in May this year.

U.S. Unemployment rate: 4.3%, July
U.S. Unemployment rate: 4.3%, July

Payrolls rise 209k in July

According to the data from the Labor Department, nonfarm payrolls rose by a seasonally adjusted 209,000 jobs in the month of July from the previous month. This was higher than the economists’ forecasts which projected a number of 180k during the period.

The payroll numbers for June were also revised higher to show 231k, but May’s payrolls were revised down to 145k. Still, for the past two months, the revisions saw additional 2k jobs being added.

The July payrolls report was clearly a bright spot in the US data in an otherwise disappointing week. Although growth in the US has slowed to an average of 2% and a weak pace of inflation, the US labor market continues to grow strongly.

For the most part of this year, hiring in the United States remained steady, despite some hiccups from inflation and even growth.

Health care, leisure, and other services sectors remained the key drivers of the jobs market last month. Manufacturing jobs also helped as the sector posted a second straight month of gains. Government jobs were seen lagging.

The labor force participation rate, which is also closely watched, showed a modest increase of 62.9% in July. This was higher than June’s 62.8%.

Wages rise 0.3% on the month

Wages have also remained a key aspect for investors in the jobs report. Wage growth remained largely muted. However, for July, data showed that wages grew at a pace of 0.3% on the month from June.

U.S. Average Hourly Earnings: 0.3% m/m, July
U.S. Average Hourly Earnings: 0.3% m/m, July

The average hourly earnings were seen rising $0.09 cents or about 0.3% on the month. On an annual basis, wages rose 2.5% which has remained the average for the most part.

Fed officials remain hopeful that wage growth will catch up. Eric Rosengren, the president of the Boston Federal Reserve, said earlier last week that the unemployment level has only fallen below a certain level that could spark stronger wage growth.

The Fed also maintains that the current weakness in the inflation is only transitory and hopes that wages will remain one of the key aspects in driving both growth and inflation higher.

As far as policy implications are concerned, last Friday’s jobs report is unlikely to do much. However, it was a welcome change for the markets and somewhat reassuring. The Fed is likely to begin its balance sheet normalization in September as it starts to unwind its balance sheet which is approximately $4.5 trillion.

The central bank is also optimistic that it will be able to hike interest rates one more time this year. Following the July payrolls report, the odds for a rate hike rose to 50%.

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