Job Growth Slows in July

Payroll employment slowed to a gain of 164,000 in July after being revised down for the previous two months by 41,000. Gains remained strong in professional services, largely for computer programming and tech-related consulting, along with social services and health care. Social services include daycare, which is providing support for single mothers coming into the workforce. Health care continues to get a boost from aging demographics. Gains were broad-based in health care although the largest single gains came from in-home care. There were also some gains in the financial sector; those gains were concentrated in insurance.

Job creation in goods-producing industries such as manufacturing and construction remained tepid. Vehicle production accounted for nearly all of the gains in manufacturing, which is expected to contract next month. There were several permanent plant closings at the end of July, mostly in Michigan and Ohio.

Leisure and hospitality hiring remained constrained by a shortage of workers. Food services did better than accommodation. Immigrants and guest workers are harder to bring into the U.S. on temporary visas than in the past. (Some are just opting out for fear of deportation.)

Retail employment continued to contract. The exceptions were food and beverage stores and gasoline stations, which include convenience stores. The drag on retail hiring associated with the move from bricks to clicks continues as traditional retailers close stores. Those losses are likely to be exacerbated by the tariffs on consumer imports from China, slated to begin in September. Margins in the retail sector are already razor-thin.

Teacher hires accounted for an increase in government employment. We keep moving up the start of the school year, which means we could see some weakness in that number in August.

Average hourly earnings rose 3.2% from a year ago, up a tenth of one percent from the 3.1% pace of June. That is welcome news for the Federal Reserve, which has been disappointed in the stagnation in wages in recent months. Some of that pick-up in wage growth was tempered by a decline in hours worked.

The manufacturing sector has taken it on the chin this year. Hours worked were down 0.7% alone in July, the largest drop since 2015, and have fallen 1.5% from a year ago. Manufacturers have scaled back in response to tariffs and weaker growth abroad. The next shoe to drop will be employment in the manufacturing sector.

Separately, the unemployment rate held steady 3.7% for the right reasons. The participation rate picked up by 0.1% to 63%. A sharp rise in the participation of black teens and black men over the age of 20 accounted for nearly all of that increase in participation. Participation also increased among adults with less than a high school degree. This is one of the primary reasons the Fed is now committed to extending the expansion, as it is finally reaching people who had been sidelined for much of the expansion. It also suggests that there is more slack in the labor force than many initially thought. Never underestimate someone’s ability and willingness to work when given the chance.

Another plus was the drop in the number of people forced to accept part-time instead of full-time work. Those ranks dropped by over 300,000 workers in July, which helped to push the U6, or stress measure of unemployment, to a cyclical low of 7%. The U6 hit an all-time low of 6.8% in October of 2000. The downside is that we also saw a large uptick in the number of people working more than one job; these were mostly people who have full-time jobs and added a secondary part-time job.

Bottom Line
Employment gains are slowing but not enough to derail the expansion, yet. Additional tariffs and ongoing weakness abroad are expected to take more of a toll on growth in the second half of the year. Our forecast for at least one additional rate cut by the Fed in 2019 holds. We are expecting more cuts in 2020.

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