Inside the July Payroll Data

July jobs data were strong across the board, with non-farm payrolls growing by 255,000, well above consensus expectations of about 170,000 and above the top end of the consensus range for the second consecutive month. The strong report keeps the Federal Reserve (Fed) on pace for a rate hike later this year, which we expect will likely occur in December, although September is on the table.

  • In addition to the strong headline number, May and June data were revised upward by a total of 18,000 jobs.
  • The economy has now created an average of more than 200,000 jobs per month over the trailing year for 28 consecutive months.
  • The number of jobs has grown for a record 70 straight months, with the previous record of 48 straight ending in 1990.
  • The three-month average of jobs growth rose to 190,000, still weighed down by a slow May, versus 259,000 at this time last year. With the unemployment rate likely near the eventual lows of this economic cycle, we think job growth may slow to 125,000 to 150,000 by the end of the year; still enough for the Fed to raise rates before the end of 2016, in our view.
  • The unemployment rate held steady at 4.9% with more job seekers entering the market. The participation rate ticked higher to 62.8%, but remains near its lowest level since the late 1970s.
  • Hourly earnings rose 0.3%, in-line with expectations and an acceleration from last month’s 0.1%. Year over year, hourly earnings rose 2.64%, up slightly from June’s 2.60% and tied with December 2015 (also 2.64%) for the fastest pace of wage growth since the end of the Great Recession.
  • With the average workweek ticking higher, average weekly earnings grew 0.6% month over month.

Always one of the most anticipated economic reports each month, this strong report provides further evidence that the U.S. labor market remains in pretty good shape. The report is on the narrow path to a September rate hike (as we noted in our latest Weekly Economic Commentary), but we continue to see a December hike as more likely.

IMPORTANT DISCLOSURES
The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The monthly jobs report (known as the employment situation report) is a set of labor market indicators based on two separate surveys distributed in one monthly report by the U.S. Bureau of Labor Statistics (BLS). The report includes the unemployment rate, non-farm payroll employment, the average number of hours per week worked in the non-farm sector, and the average basic hourly rate for major industries.

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