US hiring dips; manufacturing work hours slashed
US job growth slowed in July and manufacturers slashed hours for workers, which together with an escalation in trade tensions between the United States and China could give the Federal Reserve ammunition to cut interest rates again next month.
The Labour Department's closely-watched monthly employment report came a day after President Donald Trump announced an additional 10 per cent tariff on $300 billion worth of Chinese imports starting September 1, a move that led financial markets to almost fully price in a rate cut in September.
"There has been some slowing, and the tariff announcement suggests more trade-related weakening in the months ahead," said Jim O'Sullivan, chief US economist at High Frequency Economics in White Plains, New York. "We still expect the Fed to ease again at the September meeting."
Nonfarm payrolls increased by 164,000 jobs last month, the government said. The economy created 41,000 fewer jobs in May and June than previously reported. July's job gains were in line with economists' expectations. The average workweek fell to its lowest level in nearly two years in July as manufacturers reduced hours for workers, a potentially bad omen for the economy.
The US-China trade war is taking a toll on manufacturing, with production declining for two straight quarters. Business investment has also been hit, contracting in the second quarter for the first time in more than three years and contributing to holding back the economy to a 2.1 per cent annualised growth rate.
The White House's "America First" policies are also restricting trade flows. A separate report from the Commerce Department showed sharp declines in both imports and exports in June, leading the trade deficit to dip 0.3 per cent to $55.2 billion during the month.
July payrolls marked a further deceleration in job growth from an average of 223,000 per month in 2018. Economists say it is unclear whether the loss of momentum in hiring was due to ebbing demand for labour or a shortage of qualified workers.
Still, the pace of job growth remains well above the roughly 100,000 needed per month to keep up with growth in the working-age population. The unemployment rate was unchanged at 3.7 per cent in July as 370,000 people entered the labour force.
Despite the lowest jobless rate in nearly 50 years, wage gains remain moderate, contributing to a tame inflation environment, which could be supportive of another rate cut next month. Inflation has undershot the Fed's 2 per cent target this year, rising 1.6 per cent on a yearon-year basis in June after a 1.5 per cent gain in May.
Average hourly earnings rose 8 cents, or 0.3 per cent, in July, after the same increase in June. That lifted the annual increase in wages to 3.2 per cent in July from 3.1 per cent in June. The trend in wage gains has slowed from late 2018 when wages were rising at their fastest rate in a decade.
US stock index futures extended losses shortly after the release of the data. US short-dated Treasury yields pared declines and U.S. interest rate futures rose. The weakened against the yen.
Even with the step-down in employment growth and moderate wage gains, the labour market is supporting the economy as the stimulus from last year's $1.5 trillion tax cut package fades. Economic growth in the third quarter is seen at around a 1.5 per cent rate.
The labour force participation rate, or the proportion of working- age Americans who have a job or are looking for one, rose to 63 per cent in July from 62.9 per cent in June.
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