Editor's Note: This report is based on survey data from July 2023 that was published in August 2023. This is the most recent data available. (Source: Bureau of Labor Statistics)
The US unemployment rate fell by one-tenth of a point for the second month in row, down from 3.6% to 3.5%, landing just one-tenth of a point above a historic low of 3.4%, which has been recorded twice already in 2023 despite not having been recorded since the 1960s prior to this year.
Job growth was positive as well with the addition of 187 thousand new jobs last month. That said, the job growth trend is clearly slowing, with each of the two previous months having their initially-reported jobs figures adjusted down as of the latest report, as well.
Given those corrections, June and July of 2023 at 185 thousand and 187 thousand jobs added, respectively, represent the first instance of two consecutive months with fewer than 200 thousand new jobs added since the onset of the pandemic in 2020.
The labor force participation rate held steady at 62.6% for the 5th consecutive month, underscoring the stability that characterized much of the household survey data with few exceptions - most notably the reduction in people affected by temporary layoffs, which fell by about 20% over the course of July to reach 667 thousand workers.
While the payroll additions continued to look strong, especially in the face of the Fed’s ongoing interest rate hiking campaign, those gains appear to be largely concentrated among a handful of industries, with many industries experiencing no significant change.
For example, with the addition of 63 thousand jobs last month, the healthcare industry alone accounted for about one-third of all new job growth in July, followed by the social assistance and other services industries which recorded 24 thousand and 20 thousand new jobs, just ahead of the 19 thousand, 18 thousand, and 17 thousand new jobs added in the financial services, wholesale trade, and leisure and hospitality industries, respectively. Collectively, these industries account for about 86% of all job growth.
Some of the industries that saw no meaningful change in job numbers over the course of July include mining, oil and natural gas extraction, manufacturing, retail, transportation, information, warehousing, and government, while both temporary help and professional and business services experienced small reduction in the size of their workforces (22 thousand and minus 8 thousand, respectively).
Average hourly earnings grew by 14 cents to $33.74 and the average workweek fell by 0.1 hours to 34.3 hours per week.
Mployer Advisor’s Take
Even with job growth slowing, US employers are still creating nearly twice as many jobs as the labor pool can supply according to the Fed, which is one of the reasons that wage rates continue to rise despite their efforts to shift that power balance and dampen inflation.
Over the last 12 months, wages are up 4.4% and July’s 0.4% wage increase equals about 4.8% annualized, so wage growth clearly remains above the 3% target that the Fed has been aiming for.
Further, while inflation over the last 12 months is down below historic averages at about 3%, that’s still a bit above the Fed’s goal of 2%, so not quite on target there either.
That said, despite the fact that wages, job growth, and inflation haven’t quite slowed to the Federal reserve’s publicly-stated desired ranges, we are getting very close, and there’s a growing consensus that the Fed is likely to take its foot of the gas pedal when it meets again in September, forgoing another rate hike.
That outcome is far from determined, of course, and even consensus opinion and market expectations can be (and often are) wrong, of course. And even if the Fed chooses not to increase interest rates in September, such a decision would not preclude them from picking the rate hiking campaign right back up again in the ensuing months.
Still, it does appear that there may be some light at the end of this tunnel rate-hiking tunnel that the US economy has been barreling through for the last year and a half, and that light is looking increasingly like runway guidance as we approach the long-sought soft landing that manages to deflate inflation without bursting the economy’s bubble.
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