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US: Payrolls Continue to Slow on a Trend Basis in July, While Unemployment Rate Ticks Lower 

Non-farm payroll employment rose by 187k in July, a hair below expectations calling for a gain of 200k. Revisions to the two prior months were weaker, subtracting 49k from the previously reported figures.

  • Hiring over the last three-months averaged 218k jobs per-month, slightly weaker than the 228k reported in June.

Private payrolls rose by 172k – up from the 128k in June.  Service-sector gains (+154k) were heavily concentrated in health care (+87k), though wholesale trade (+17.9k) financial services (+19k), leisure & hospitality (+17k) and ‘other’ services (+20k) also chipped in with modest gains. Goods-producing industries also added jobs on the month, though gains were almost entirely concentrated in construction (+19k). Government added 15k net new jobs.

  • The breadth of hiring – as captured by the diffusion index – narrowed to 57.2%, which is only a hair above its cyclical low of 57.0% reached back in March.

In the household survey, civilian employment rose by 268k, while the labor force grew by a more modest 152k, resulting in the unemployment rate ticking 0.1%-pts lower to 3.5%. The participation rate held steady at its cyclical high of 62.6%.

Average hourly earnings rose 0.4% month-on-month (m/m) – matching June’s gain – and are up 4.4% on a year-over-year basis and 4.9% (annualized) over the last three months.

Key Implications

Job growth on a trend basis continues to move in the right direction, with the six-month moving average having pushed steadily lower in each of the last nine months. While certainly a good sign, today’s pace of hiring is still running well above what’s consistent with trend growth in the labor force, let alone anything weaker that would result in any sustained upward pressure on the unemployment rate.

This morning’s report didn’t offer much in the way of encouraging news on the inflation front, but last week’s release of the Q2 reading on the Employment Cost Index – which includes the Fed’s preferred wage metric – did show some signs of cooling. According to the ECI, employee compensation slowed to 4.1% (annualized) – down from 4.7% in Q1 and well-off last year’s cyclical high of 5.4%. Though this is still firmly above the 3.0%-3.5% consistent with 2% inflation, the fact that compensation is trending lower suggests that the labor market is (gradually) coming back into better balance. This should provide the FOMC the reassurance it needs to move to the sidelines and wait for the full effects of prior tightening to work its way through the economy. One thing is for certain, rate cuts remain a long way out.

TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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