Real Time Economics Special Edition: More Jobs But at a Slower Pace

U.S. employers added 164,000 jobs in July and the unemployment rate held steady at 3.7%. Jeff Sparshott and Greg Ip here to take you through today’s numbers.

Beneath the Surface, a Sharper Slowdown

Average job growth slowed to 140,000 over the last three months, still pretty robust and well above demographically-determined long-run growth. Beneath the surface, the slowdown looks sharper. The average workweek shrank as manufacturers cut overtime. Total hours worked by non-managerial employees haven’t grown since January and are up 0.7% from a year earlier, the slowest since 2010. This looks a lot like 2016 when Federal Reserve tightening, a China devaluation and plunging oil prices slammed manufacturing worldwide. This shock, driven by trade conflict and a slowing China, might similarly prove temporary. But the Fed needs to be ready for something more serious. —Greg Ip

KEY THEMES

Cold Comfort

For the Federal Reserve, the July jobs report offers some comfort. But probably not enough to offset worries over escalating trade tensions, Nick Timiraos writes.

• The Fed cut its benchmark rate by a quarter percentage point on Wednesday, citing worries about global growth, trade and muted inflation. Chairman Jerome Powell left the door open to another cut later this year.
• Look no further than President Trump’s surprise decision on Thursday to impose 10% tariffs on $300 billion in Chinese goods to understand why the Fed cut—and why it could be harder to use backward-looking economic indicators like the jobs report to determine the Fed’s next moves.
• “I would love to be more precise” about the economic outlook, Mr. Powell said on Wednesday. “But with trade it is a factor that we have to assess in kind of a new way.”
• Investors largely expect the Fed will follow this week’s rate cut with another at its next meeting, Sept. 17-18.

What’s My Raise?

The other big story for the Fed this year has been tepid price pressures. In the U.S., wage growth has outpaced inflation but shown signs of tapering off. Hourly wages rose 3.2% from a year earlier in July, down from a recent high of 3.4% in February. Normally when the economy has been expanding for many years, officials might expect hiring to slow because there are fewer workers to draw off the sidelines. But the recent cooling of wage growth raises doubts over whether that is happening now. —Nick Timiraos

Measures of Health

One of the bright spots in Friday’s report: The broadest measure of unemployment, which includes people who’ve stopped searching for work as well as part-time workers who want a full-time job, fell to 7.0% last month. That was the lowest level since late 2000 and a sign that the strong labor market continues to pull more Americans off the sidelines. —Harriet Torry

Other key measures of labor-market health have been mixed. The labor-force participation and employment-to-population ratio for workers age 25 to 54 peaked early in 2019 and have since tailed off. The economy is drawing more people in, but not those in their prime working years.

One blight on Friday’s report: Downward revisions made data for the two previous months less rosy. June payrolls growth was revised down to 193,000 from an initial estimate of 224,000, while May was revised down to 62,000 from a prior estimate of 72,000. The economy is adding an average of 140,000 jobs a month over the past three months. A year earlier, the pace was 237,000.

Goods vs. Services

One evolving theme across the labor market this year: the divergence between goods-producing and service-providing sectors of the economy. Mining, manufacturing and construction have been hit by an array of factors, including cutbacks in the energy industry and a trade-related pullback in business investment. That has held back job creation: From January to July in 2018, goods-producing employers added 414,000 jobs. So far this year it’s been only 160,000, down 61%. The service sector, more insulated from global turmoil, commodity prices and other outside variables, has seen a much milder slowdown.

While factories get all the love, the retail industry employs more people: 15.8 million compared with 12.9 million. And it’s one segment of the service sector that hasn’t been doing well, with six straight months of job losses.

What Economists and Analysts Are Saying About the Jobs Report

“The labor market expansion has shifted down this year but is still impressive given that it is in its 10th year of uninterrupted growth.” —Sophia Koropeckyj, Moody’s Analytics

“The economy seems to be cooling relative to earlier in the expansion, but these figures reflect a growing economy, not one that is in, or on the brink of, decline.” —Beth Akers, Manhattan Institute

“For all the concern over weak global growth and trade policy, the domestic economy is still holding up reasonably well.” —Andrew Hunter, Capital Economics

“Job growth continued to slow, and is now less than three-quarters of what it was on average at this point last year. That being said, job growth is not at a level that should cause concern for jobseekers. The economy is still expanding, just at a slower pace.” —Martha Gimbel, Indeed Hiring Lab

“We can throw it out the window with the prospect of the new tariffs.” —Peter Boockvar, Bleakley Advisory Group

Sign Up for Our Calendar

Real Time Economics has launched a downloadable Google calendar with concise previews, forecasts and analysis of major U.S. data releases.

• To add to your Google Calendar on desktop, click here.  
• To add to your Google calendar app on mobile, click here.
• If you prefer to view the calendar using a web browser, with the option of adding select Real Time Economics entries to your calendar, click here.
• And here’s our how-to.

Let us know what you think. This is a pilot project, so we’d appreciate your feedback.