Job growth in July saw a slowdown, with only 187,000 new jobs added.
The Economy Adds 187,000 Jobs in July, Reflecting a Slowdown in the Labor Market
The Bureau of Labor Statistics reported on Friday that the economy added 187,000 jobs in July. However, this number indicates a slowdown in the labor market as the Federal Reserve tightens its monetary policy to combat inflation.
The previous two months’ payroll job additions, adjusted for seasonal variation, were also revised down by 49,000, suggesting a decline in the pace of job growth.
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This slowdown could complicate the White House’s efforts to credit President Joe Biden for the strong job creation seen over the past year. It also indicates that the Fed’s rate hikes are starting to have a greater impact on the broader economy, potentially solidifying expectations that the Fed will not raise rates further.
Nevertheless, Friday’s report paints a picture of a still strong labor market. The unemployment rate decreased by a tenth of a percentage point to 3.5%, historically a very low figure. Additionally, job growth remains robust, indicating underlying momentum in the economy.
Wage gains also show no signs of slowing down, contrary to the Fed’s hopes of seeing a decrease as a sign of abating inflation pressures. Average hourly earnings for workers in the private sector increased by 4.4% in the year ending in July, consistent with the trend observed throughout the year.
“The latest data are signaling a very gradual moderation in tight conditions,” noted Rubeela Farooqi, the chief U.S. economist for High Frequency Economics. “Fed officials will want to see further evidence of easing in job growth, wages, and inflation to more sustainable levels, which will be an important consideration in policy decisions going forward.”
The Fed has undertaken a historic effort to tighten monetary policy in response to the inflation that has affected households in recent years. Annual inflation, as measured by the consumer price index, has fallen from over 9% in June last year to just over 3% this June.
GDP growth for the second quarter has also surpassed consensus expectations, with an annual rate of 2.4%. This demonstrates that the economy is performing well despite the Fed raising interest rates to the highest level in over two decades.
The most noticeable effects of the Fed’s rate hikes have been observed in the housing market. The average rate on a 30-year fixed-rate mortgage has surged from around 3% at the beginning of the rate-hiking campaign to nearly 7% this month, according to Freddie Mac.
These higher rates have made home-buying unaffordable for many families, resulting in a significant decline in home sales.
However, the construction industry has remained strong. Friday’s report revealed the addition of 19,000 jobs in the sector, consistent with the healthy gains seen over the past year.
One reason for the strong construction numbers is the rise in interest rates, which has reduced the supply of existing homes for sale. Many homeowners are reluctant to sell because they have low rates on their mortgages and would have to obtain new loans at much higher rates if they were to sell and buy a home elsewhere. This lack of supply has put pressure on builders to bring new homes to the market, thereby boosting employment.
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