Payroll Gains Remain Healthy in July

By Ben Sirois, Economist with Dodge Data & Analytics

Nonfarm payrolls beat expectations again, adding a seasonally adjusted 209,000 jobs in July, handily exceeding the 180,000 predicted in a Bloomberg poll of economists. Job gains for May were revised downward by 7,000 while June was adjusted up by 9,000, adding a net of 2,000 jobs in revisions. The three-month average for job gains increased slightly to 195,000 bringing the 2017 year to date average to 184,000, almost identical to the 2016 full-year average of 182,000.



Labor force participation, while still low by historical standards, continues to grow marginally moving from 62.8% in June to 62.9% in July. Even with an increase in labor force participation, the unemployment rate dropped to 4.3% in July, a 16-year low. The combination of higher participation with a decrease in the unemployment rate suggests that the labor market continues to be strong enough to absorb increases in the labor force.

The private sector added 205,000 jobs in July, with the largest gains coming from leisure and hospitality (+62,000), education and health services (+54,000) and professional and business services (+49,000). Construction hiring cooled a bit adding just 6,000 jobs in July led by increases in residential building (+5,100) and specialty trade contractors (+1,200). Nonresidential building payrolls held essentially flat (+400) while heavy and civil engineering construction fell (-1,200). The public sector added 4,000 jobs in July with local government continuing to grow (+7,000) while Federal employment remained flat and the State level decreased by 3,000.

Wage growth is continuing its consistent though unimpressive upward track, increasing 2.5% year on year. More robust salary growth remains elusive despite the headline 4.3% unemployment rate. The combination of many discouraged workers remaining on the sidelines and lower paying industry sectors (like leisure and hospitality) leading job growth helps to explain the inability of average hourly earnings to break out of the mid-2% range. Continued strong payroll increases and moderate wage growth should keep the Fed on their expected schedule of adding one more quarter-point increase to the Fed Funds rate toward the end of this year and announcing the timing of their balance sheet reduction plan this fall.



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