Shrugging off worries, U.S. job market surged in July
The U.S. economy charged ahead in July, shaking off weaker overall economic growth to record a second straight month of robust job gains.
Employers added 255,000 non-farm jobs last month, the U.S. Department of Labor said Friday, topping a consensus forecast of 180,000. The nation's unemployment rate remained at 4.9 percent, as more people looked for work. Payroll gains for May and June were also revised slightly upward.
Professional and business services companies saw the biggest jump in hiring, adding 70,000 jobs in July. Other sectors with significant gains were restaurants, education, health and financial services. Mining companies continued to shed jobs.
"The details of this report were quite positive, with growth in employment across all sectors," said Millan Mulraine, deputy chief U.S. Macro Strategist with T.D. Securities, in a client note.
Job growth in 2016 has averaged 186,000 per month, compared with 229,000 in 2015. To some extent, that decline is normal given that hiring slows the closer the U.S. is to full employment.
But the pace of job-creation also has been uneven this year, plunging in May to its lowest level in nearly six years and then coming in much stronger than expected in June.
Overall, the labor market has been an area of strength in an otherwise flaccid economy, driving an uptick in wages and keeping a lid on layoffs. The economy needs to add around 100,000 jobs per month to absorb new workers in the labor market and keep unemployment from rising.
In another good sign, average hourly earnings for July rose 8 cents, or 0.3 percent, to $25.69. Wages are rising at an annualized rate of 2.6 percent, the strongest increase since the recession ended in June of 2009. Wage growth during most of the recovery averaged just above 2 percent, markedly slower than after previous rebounds.
A pick-up in wages is critical for the U.S. because it fuels consumer spending, which accounts for 70 percent of economic activity.
In contrast with the solid job market, total U.S. economic output over the first half of 2016 averaged a meager 1 percent, roughly half the already muted rate of growth during the stubbornly slow recovery. Weak business investment in recent months, especially by energy companies hurt by slumping oil prices, has undercut strong consumer spending.
Most economists think the economy is accelerating in the current quarter, with one gauge of growth from the Federal Reserve Bank of Atlanta forecasting annualized gross domestic product of 3.8 percent for the July-to-September period.
"The U.S. economy looks set to enjoy a blistering third quarter after a sluggish first half to 2016," said Joseph Lake, director of global forecasting with the Economist Intelligence Unit, in a note. "Most indicators are pointing in the same direction. Rapid employment growth, rising wages, low inflation, strong consumer spending and a turn in the inventory cycle could all add up to the best quarter for the U.S. economy in at least a year."
Still, given the anemic expansion in the first half of the year, many forecasters now think growth will struggle to hit 2 percent in 2016. That would fall well shy of last year's 2.6 percent rate and amount to the weakest pace of economic output since 2013, when GDP slid to 1.7 percent.
Many forecasters think that weak growth and below-target inflation is likely to keep the Federal Reserve from raising interest rates until December at the earliest.