Private Payrolls Add 164K Jobs, Unemployment Rate Steady At 3.7%

How far along the rate-cut path will the Fed go? Maybe a bit further given a middling employment report where an important detail is pointing to big trouble for the next industrial production report. First the headlines as nonfarm payroll rose 164,000 which is actually 13,000 above Econoday's consensus for 151,000. But much of the strength came for a second month from government payrolls which, reflecting the heavy government spending that's underway, rose 16,000 to top June's 14,000 rise. Private payrolls, which exclude government payrolls, rose 148,000 which, in contrast to the nonfarm headline, is 12,000 under Econoday's consensus.

But a key detail is a decline in manufacturing hours, at 40.4 hours in the weeks and down from 40.7 hours in June, with manufacturing overtime also down, at 3.2 hours from 3.4 hours. These are inputs into the manufacturing component of the July industrial production report and point to a quick reversal from June's strength, one that would no doubt focus new attention on the weakness of the sector and the effects of slowing global trade.

Yet wage pressures may be dulling at least some of the Fed's stimulus bias, especially for the two FOMC members who voted against Wednesday's rate cut. Average hourly earnings rose 0.3 percent which is at the top-end of Econoday's consensus range while June's rise is revised 1 tenth higher and now also stands at 0.3 percent. Year-on-year, earnings rose 1 tenth to 3.2 percent and though moving upward in the month have been higher, at 3.4 percent back in February this year.

Even if wages aren't rising that much, the availability of labor does show some tightening. The unemployment rate held steady at a very low 3.7 percent but the participation rate did rise 1 tenth to 63.0 percent. The pool of available workers fell nearly 200,000 in the month to 11.1 million.

Turning back to payrolls, manufacturing posted a strong gain of 16,000 which easily tops the consensus range even if the hours in the sector fell in the month. Payroll gainers aren't eye popping but do include a second straight 38,000 rise for business services which points to demand for contractors and temporary workers, as well as an 18,000 rise for financial activities. On the downside is yet again retail which fell 4,000 in the month to extend its very severe contraction.

Manufacturing is the focus right now and today's report points squarely at an unfavorable reading for the sector in the next industrial production report which will be posted Thursday, August 15. Otherwise today's report is mixed showing a solid and sustainable pace for overall payroll growth fed in part by government workers and incremental but not excessive tightening in labor conditions.