July Jobs Strength
The labor market produced another strong month in July, as the economy created over 200,000 jobs for the second consecutive month. The total change in nonfarm payrolls increased by 209,000 jobs, well above the 180,000 figure economists expected for the month. The strong gains experienced in June were revised higher, as the economy created 231,000 jobs instead of the initial estimate of 222,000 jobs. This increased the three-month average to 195,000 jobs, which remains above the average of 187,000 jobs created for all of 2016. The unemployment rate fell to 4.3%, while the broader measure of unemployment which measures both full-time and part-time workers, the U6, remained to 8.6%. The unemployment rate fell even as more workers entered the workforce during the month, which caused the participation rate to increase. This continues to suggest that more workers that enter the workforce are finding jobs, which should reduce the slack in the labor market.
Another positive sign in this month’s report was the uptick in wages, which grew by 0.3% that was inline with economists’ expectations. The annual pace held steady at 2.5% year-over-year, which was above expectations. With the reduced slack in the labor market and sustained broad-based payroll gains, we believe wage growth will pick up this year into next year. Both inflation expectations and bond yields increased after the report was released this morning. This latest report should allow the Federal Reserve to continue with their plan to initiate reducing the size of their balance sheet, which many expect to begin at their meeting next month. Furthermore, nothing in the latest report alters the market expectation that the Federal Reserve may raise rates at least one more time by the end of the year. Therefore, we continue to expect modest economic growth with a low probability of recession through the end of the year.
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