Solid Job Gains Expected for July

Our forecast shows 190,000 net new jobs in July, with 172,000 in the private sector where hiring is being driven by strong gains in leisure and hospitality as well as health care. We expect hiring in the manufacturing sector to moderate slightly due to seasonal plant closings and a slowdown related to new tariffs. Margins for smaller producers are being squeezed as they are unable to pass along higher costs; larger producers, including vehicle makers, are hoping to make price hikes stick.

Construction hiring is expected to moderate. Record heat across parts of the country has forced delays while labor shortages are intensifying especially in the single-family housing market. The key area to watch is specialty contractors in residential who do construction and remodeling. Remodeling projects have picked up as older homeowners with equity in their homes have realized it is cheaper to remodel than to trade up in a market where home values have far outpaced the rate of income growth and higher mortgage rates. Remodeling is still a deduction for homeowners who tap home equity for new projects; up to $100,000 in costs can be deducted if it is used for remodeling.

Warehouse and distribution employment is expected to continue to grow along with trucking. Some of the large vehicle producers accelerated shipments from abroad to avoid what they fear could be a new round of tariffs on vehicles and parts. The problem is storage. We don't have the warehouse space we once did because of the shift to just-in-time inventories. The U.S. has temporarily shelved concerns about autos by agreeing to hold off on tariffs for the European Union as long as negotiations continue. The sticking point is that it is not clear what was agreed upon in a recent meeting, which means negotiations could easily be tripped up.

Retail hiring is expected to remain a weak spot with more store closings. Announcements made over the last six months or so are finally being executed.

Public sector hiring will likely see a slight increase from federal spending; hiring at the state and local levels remains constrained.

Average hourly earnings are expected to show a rise of 0.3% in July from June, which is solid but not enough to move the needle compared to wage levels one year ago. We have been stuck at 2.7% growth on a year-over-year basis for several months. The stickiness of wages has many origins, not the least of which is reduced bargaining power among workers. Everything from reduced unionization to the proliferation of “no poaching” agreements and noncompete clauses has shifted more power to the owners of capital. Firms that have taken on more debt are also a factor because their workers do are not have the wage gains of those who move to new jobs.

The unemployment rate, which is taken from a different survey, is expected to tick down one-tenth of one percent to 3.9%. A rise in the labor force participation rate due to retirements that open up positions is helping to offset that drop. Increases had been linked to a rise in participation by young teens and women. School has been out for a while so we are not likely to see the same increase among young teens. Their options are better, however, than they have during much of the expansion.

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