US Labor Market Cools, Wages Warm

The US economy added just 187,000 jobs in July, Friday’s closely-watched government report showed.

Revisions subtracted 49,000 from the prior two months. June’s gain now stands at 185,000.

Between the revisions and July’s headline (which was a rare downside miss to consensus), the pace of job creation across the world’s largest economy now looks markedly cooler, even as it remains relatively robust by pre-pandemic standards.

Consensus expected around 200,000 from the headline. The average over the past 12 months was more than 300,000.

Private payrolls rose 172,000, the BLS said. That was around half the gain ADP reported earlier this week. The household survey showed a 268,000 increase.

Gains were concentrated in healthcare and social assistance. Leisure and hospitality hiring was little changed. Manufacturing shed 2,000 jobs.

Unfortunately for the Fed, average hourly earnings came in hot. Or warm, at least. The MoM pace was 0.4% versus 0.3% expected.

On a YoY basis, AHE rose 4.4%, unchanged from June’s 12-month gain.

With a cool ECI reading in hand, and an encouraging ULC print, I doubt the overshoot on the monthly AHE print will move any needles at the Fed, although it does underscore the notion that wages are likely to remain firm, thereby putting a floor under core inflation. It’s just a matter of where that floor is.

The unemployment rate moved lower to 3.5% with participation unchanged at 62.6%. Hours worked ticked lower to 34.3, not a surprising development.

All in all, the report offered little in the way of game-changing information. There was nothing that I could see with the potential to alter the Fed narrative, particularly given the number of key releases between now and the September FOMC meeting.