Lower than expected jobs growth in July is disappointing, but not devastating.
The US economy gained just 162 000 jobs in July, countering economists who had more optimistic forecasts.
“Today was a disappointment,” said John Kinahan, chief strategist at TDAmeritrade adding that economists were forecasting anywhere from 185 000 to 200 000 for July.
A drop in hourly wages and average working week adds to the concern. Though unemployment went down, more people have left the workforce. Meanwhile, a drop in average work week hours and hourly pay is disconcerting, especially considering that most gains were seen in lower-wage or temporary jobs.
“The quality of jobs created was a concern,” said Kinahan.
Establishment survey data shows that the retail sector gained 47 000 jobs, while 38 400 jobs were created in food services and drinking places, up 381 00 from last year. Meanwhile, the construction sector lost 6000 jobs last month.
Construction and manufacturing jobs are important indicators of a recovering economy, when they begin to improve it shows demand, and could signal that workers are turning into consumers. The fact that they have hovered around the same levels isn’t great, but certainly doesn’t signal a downturn.
Because construction and factory jobs tend to be higher paying then retail or foodservice, Kinahan said these differences could explain the decrease in average hourly wages, which dipped 2 cents to $23.98. While this change may seem small, hourly wages are typically the first things to predict a further decrease in job growth and could indicate what’s ahead.
In July about 8.2. million people working part-time jobs for economic reasons. This is similar to the same time last year, but it’s concerning that 32% of them do so because they could only find part-time work, meaning employers are not yet confident enough to hire more full-time workers.
Alison Troy works as a promoter for Broadway musicals in Times Square, but it isn’t exactly her career goal.
“This is more of a survival job for me,” said Troy, who also works part time as a waitress, “I’m just trying to pay the bills.”
The unemployment rate dropped to 7.4 percent, which should be a good sign. However, the participation rate dropped to 63.4 percent, meaning about 37 000 people either stopped working or stopped looking for a job last month.
“The labour market has a long way to go to return to full health,” said Sophia Koropeckyj, Managing Director of Moody’s Analytics in a note to clients, adding that the numbers may have been a surprise, but still show very moderate improvement.
“On a more positive note, the dreaded impact of sequestration has yet to materialize,” she said, citing an increase of 1000 jobs in the government sector.
In fact, despite the fact that July’s numbers were lower than expected, the long-term picture is not quite as disastrous.
“While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement since it restarted its asset purchases last September,” said Paul Ashworth, Chief US Economist at Capital Economics.
Indeed, the unemployment rate has dropped 1.2 points from 8.2% last year, and despite July’s numbers and revisions, the average jobs gains this year are still hovering around 200 000.
Ashworth predicts the Fed won’t decide to reduce its monthly asset purchases when the Federal Open Market Committee meets this September.