U.S. sees another month of hiring gains
The Labor Department on Friday released its hiring and unemployment figures for July, providing a fresh snapshot of the health of the U.S. economy.
What is the takeaway?
The latest job figures follow a steady stream of hiring gains and a robust reading on economic growth. Last week, the Commerce Department reported that gross domestic product expanded at an annual rate of 4.1 percent in the second quarter, the fastest pace in nearly four years.
Like weather forecasters predicting sunny skies in Southern California, economists have watched the labor market produce consistent monthly increases in hiring recently.
“I’ve never seen such a steady stream of gains — there’s no volatility in the numbers,” said Ellen Zentner, chief U.S. economist at Morgan Stanley.
Although the overall gain for July came in slightly below expectations, figures for payroll increases in May and June were revised substantially higher. The Labor Department said the economy added 268,000 jobs in May, up from an initial estimate of 244,000, while the June gain was revised upward to 248,000 from 213,000.
Martha Gimbel, director of economic research at Indeed.com, noted before Friday’s report that in the first half of 2018, the average monthly increase in jobs had even exceeded those in the comparable periods of 2015 and 2016. (With revisions, it was 224,000, compared with 184,000 in the same period last year and 181,000 in 2016.) “It is amazing that at this point in a recovery you are seeing growth that is on average faster than the previous two years,” she said.
What is the strongest hiring sector in the U.S.?
The manufacturing sector has been strong recently and gained an additional 37,000 jobs in July.
“We’re not seeing any impact from trade tensions, as it’s too early,” said Scott Anderson, chief economist at Bank of the West in San Francisco.
Makers of machinery, fabricated metals and electrical equipment have been among the most aggressive in hiring.
Steel Ceilings in Johnstown, Ohio, hired two hourly workers last month and will hire another two this month if it can find appropriate candidates, said Rick Sandor, the company’s president. That’s not easy these days: Shifts run from 5 a.m. to 2 p.m., and temporary workers start at $14 per hour. So as the labor market has tightened, Sandor has eased the requirements for new hires.
In the past, he insisted on a couple of years’ experience in metal fabrication but now settles for candidates who show mechanical skills, like carpentry or heating and cooling repair.
Sandor is willing to waive the requirement for a high school diploma as well and has even hired applicants with what he terms “minor” prison sentences.
Workers ask, ‘Where’s my raise?’
Despite the steady hiring gains and the low unemployment rate, wages have been growing just barely faster than inflation.
“People keep wondering when that magical kink will occur and wages will turn on a dime,” Zentner said.
Not yet, she predicted. Although the low unemployment rate has produced pockets of labor shortages, she said, “it’s not economywide.”
One reason is that plenty of workers still seem to be coming off the bench. For July, the participation rate was 62.9 percent, unchanged from June.
What is the Fed’s view of the economy?
The Federal Reserve upgraded its view of the economy last week, substituting “strong” for “solid” in the statement that policymakers released after their latest meeting. The consensus on Wall Street calls for the central bank to raise rates twice more this year, in September and December.
Friday’s report confirms that trajectory, which would bring the benchmark rate to 2.25 to 2.5 percent by the end of the year. Although even that level is low by historical standards, the Fed’s slow but steady campaign to normalize interest rates after years near zero is beginning to be felt.
Homebuyers are encountering higher mortgage rates, one reason that the housing market has been faltering lately even as other economic indicators like hiring have remained strong, as evidenced by the upward revisions for May and June.
“We got enough upward revisions to offset the slight disappointment on the July number,” said Simona Mocuta, senior economist with State Street Global Advisors.
Mocuta added that the dip in the unemployment rate without any corresponding upward pressure on wages suggested more slack in the labor market than the unemployment rate might otherwise suggest.
“We are bringing unemployment way below 4.5 percent, which the Fed considers full employment,” she said. “But we are getting very modest wage inflation. This is an issue not just for the U.S., but in every other developed market.”