U.S. job growth remains strong, jobless rate falls to 4.3 pct in July

U.S. recorded a strong jobs market report for the month of July. The U.S. economy registered a healthy 209k net new hobs adding an upwardly revised 231k gain in June. Revisions to the earlier two months of payrolls added 2k positions.

Private payrolls increased 205k, led by rises in food services and drinking places, professional and business services and health care. In all services sector hiring accelerated in July, while the goods sector downshifted a bot on slower gains in construction.

In the household survey, job growth in July outpaced a 349k rise in the labor force, taking the jobless rate down a bit to 4.3 percent. More encouraging was a rise in the participation rate to 62.9 percent from 62.8 percent in June. Wider measures of underemployment, such as the U-6 rate stayed the same. Wages rose slightly in July, with a strong 0.3 percent rise in average hourly earnings. That left year-on-year wage inflation stable at 2.5 percent in July.

Job gains beat expectations once again. Job growth moderated just slightly from June to July, and the average over the past six months remained stable around 180k. At this stage of the business cycle, job growth would have been expected to have slowed further, so the durability of employment gains is impressive.

However, monthly job gains are still likely to moderate in the months ahead, as tight labor markets make new hires tougher to find. Jobless rate is at a cycle low of 4.3 percent and alternative measures of labor underutilization are also approaching pre-recession lows. That implies that American workers are expected to get healthier raises in the coming months, noted TD Economics in a research report.

As far as its full-employment is concerned, the U.S. Fed is justified in gradually removing monetary stimulus. It is the recent weakness in inflation that has led to some consternation by FOMC members.

“While the relationship between labor market tightness and inflation has weakened in recent years it still exists, and inflation should pick up in the coming months, providing reassurance for the Fed”, stated TD Economics.

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