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First Cut: July payrolls continue moderate in growth trend, but still plenty of jobs being added

Nonfarm payrolls rose 164,000 in July after net downward revisions to the prior two months of 41,000. This suggests that underlying growth in payrolls was somewhat below expectations, but these are still solid gains. Private payrolls were up 148,000 with decent gains among goods producers (up 15,000) and service providers (up 133,000). Manufacturing picked up the pace with an add of 16,000 jobs and construction was up 4,000. There were good increases for professional and business services (up 38,000) and education and health (up 66,000). The retail sector continued its contraction (down 3,600), while wholesalers gained (up 6,700).

The six-month moving average declined to 141,000 in July from 165,000 in June. In fact, the average increase has been on the decline since March. The second quarter monthly average was 157,000, down from 174,000 in the first quarter. It is clear that payroll growth has lost momentum, but neither should it be characterized as weak. Give the maturity of the expansion and headwinds from trade policy, these are still respectable numbers.

Workers continue to see rising wages. Average hourly earnings were up 0.3% in July from June, and up 3.2% compared to a year ago. Both point to sustained increases at a steady, if unspectacular, pace. The average workweek dipped one-tenth to 34.3 hours, not a huge difference.

The unemployment rate was unchanged at 3.7% in July from June (unrounded 3.712% compared to 3.666%) and reflected the increase in the labor force (up 370,000) with higher numbers of employed workers (up 283,000) and unemployed (up 88,000). There were 595,000 new entrants to the workforce in July (up 54,000) and fewer workers employment part-time for economic reasons (-363,000). The number of underemployed is declining and workers on the margins are finding jobs. The U6 unemployment rate was down two-tenths to 7.0%, its lowest since 6.9% in December 2000. Even the participation rate managed to nudge up a tenth to 63.0%, continuing to retrace some of the declines earlier this year.

The FOMC meeting is out of the way, so these numbers are more for the next deliberations on September 17-18. However, policymakers will have little immediate reason for concern regarding the health of the labor market in spite of some headwinds to the economy from trade and tariffs.  And, should these be resolved, activity could stage a nice rebound with greater certainty about the outlook.

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