157K Jobs Added In July, Unemployment Rate Drops To 3.9%

Slowing job growth may be a welcome outcome given the risk that economic activity may be pressing up against capacity limits. A 157,000 rise in nonfarm payrolls for July is at the low end of Econoday's consensus range but is still healthy growth that is strong enough to absorb new entrants into the labor market. And revisions to prior months are favorable, a net 59,000 gain with June revised up to 248,000 and May higher at 268,000 in what were two very strong months for job growth.

The slowing in July is also favorable for the inflation outlook as average hourly earnings showed a little heat, up 0.3 percent which was expected but still firm. The year-on-year rate, at an as-expected 2.7 percent, has been steady which is a relief to Federal Reserve policy makers who are focused on keeping inflation stable at current rates.

The payroll breakdown is led by temporary help services which rose 28,000 in a very strong gain that indicates employers, stacked up with orders and backlogs, are scrambling to meet demand. Construction payrolls also standout with a strong 19,000 gain in the latest indication of strength in this sector. Manufacturing payrolls rose 37,000 to more than double Econoday's consensus with trade & transportation, reflecting strong activity in the supply chain, up 15,000. Weakness in payrolls comes from mining, down 4,000 after a long series of gains, and also government payrolls which fell 13,000 to nearly reverse the prior month's 14,000 jump.

The unemployment rate fell 1 tenth in July to 3.9 percent with the number of unemployed actively looking for a job down 284,000 to 6.280 million. The pool of available workers, which includes those wanting a job but aren't looking, fell 379,000 to 11.443 million which hints at capacity limits in the labor force, again underscoring the risk of wage inflation. The participation rate holds at 62.9 percent.

Though the headline is softer than expected, this is yet another positive employment report that speaks to the strength of the labor market and the success, so far, of Federal Reserve policy.