With the job market generally moving in the right direction, the Fed is likely to stay the course in its plans to raise short-term interest rates soon. Fed officials haven’t given a definitive signal, but they’ve indicated that a rate increase is possible at the next Fed meeting in September or at their last meeting of the year in December.
While pockets of weakness remain — namely historically low levels of participation in the work force and very sluggish wage gains for most workers — private economists said on Friday that a September move by the central bank is a real possibility now, especially if job creation in August turns out to be as good as or better than it was in July.
“Solid enough to keep the September hike alive,” said Ian Shepherdson of Pantheon Macroeconomics, in a note to clients shortly after the release of the data.
Although the initial increase will be small, short-term interest rates have been near zero since late 2008. The Fed dropped rates to historically low levels during the depths of the financial crisis in a bid to stimulate growth and stave off panic.
The Fed controls short-term interest rates, rather than the longer-term benchmarks like 10-year bond yields that help determine rates on mortgages, so ordinary Americans won’t feel much of an impact at first.
In fact, consumers could actually benefit from an increase in what’s known as the federal funds target rate as it filters through the financial markets and causes yields on checking accounts and money market deposits to rise, according to Scott Anderson, chief economist at Bank of the West in San Francisco.
But the slow reversal of years of easy credit by the central bank has markets on edge, with traders and investors having grown used to very cheap borrowing costs. “It comes down to a shift in policy, and this will be a watershed event,” Mr. Anderson said. “Investors are looking beyond the first rate hike to where rates will be two, three or four years down the road.”
Despite the overall healthy tone of Friday’s report, areas of weakness remain.
Wage growth has been sluggish. Average hourly earnings rose 0.2 percent in July, also about what was expected and better than comparable figures in June, when wages were flat.
The proportion of Americans in the work force also did not bounce back in July after declining in recent months. At 62.6 percent, it remains at levels not seen since the late 1970s.
The Labor Department’s broadest measure of unemployment, which includes people working in part-time positions because they can’t find full-time jobs, declined 0.1 percentage point to 10.4 percent.
The mining and logging sector lost 4,000 jobs, a sign of the pain in the oil patch as energy companies cut drilling and other exploration efforts. The public sector added 5,000 jobs, while private employers increased payrolls by 210,000.
The strongest areas for hiring included health care, retailing and professional and business services. Manufacturers added 15,000 jobs in July, the biggest monthly increase for the sector since late 2014.
After years of slow gains, healthy consumer demand is finally persuading management at some factories to take the plunge and build up their work forces.
In Morganton, N.C., Ekornes, a furniture maker, plans to hire 10 more workers by the end of 2015, bringing employment at its factory to about 50, said Peter Bjerregaard, president of North American operations for Ekornes.
Like many manufacturing jobs, the new positions at the Ekornes factory pay a bit more than comparable jobs at nearby stores or restaurants. Workers earn $15 to $25 an hour and receive a generous benefits package.
Based in Norway, Ekornes opened the North Carolina plant in 2013 to make high-end Stressless brand recliners and sofas, and sales have been surging because of the strong housing sector. “Furniture gets hit first, and we are the last ones to get out,” Mr. Bjerregaard said.
Although more positive in recent days, economic data over the last few months has been uneven, with better numbers for trade and factory orders, but a lackluster overall growth rate recorded in the spring.
These crosscurrents made the report on the labor market eagerly anticipated by traders and investors on Wall Street.
Over all, the tone was slightly better than expected.
The Labor Department also revised upward the number of jobs added in May and June by a total of 14,000, bringing the average monthly gain over the last three months to 235,000.
The average workweek also grew slightly, another sign of economic momentum after a slow start to the year.
“This is very supportive of a September rate hike by the Fed,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “At this stage, the Federal Reserve is looking for confirmation. They don’t need to see additional strength, and this report pushes them one step closer.”
The snapshot provided monthly by the Labor Department is of course prone to revision, and even the economists who track it closely each month warn that a difference of 50,000 or so jobs has only limited statistical significance in an economy where gross domestic product stands at roughly $17 trillion.
Summer reports can be especially prone to seasonal variations caused by students entering the work force as well as temporary shutdowns of auto plants as carmakers retool, said Gus Faucher, senior economist at PNC Financial Services.
But Mr. Faucher said he was pleased with the data for July.
“It’s solid across the board with no red flags,” he said. “We had a nice gain in manufacturing, which is always good news, and financial services were also strong, and these tend to be well-paying jobs. The data is just consistent with broad-based economic growth.”
Publisher: The New York Times
Author: Nelson D. Schwartz
Link: http://www.nytimes.com/2015/08/08/business/economy/jobs-report-july-unemployment-hiring-wages.html?ref=economy
