Kiplinger Jobs Outlook: July Jobs Loss Is a One-off
The month’s job losses won’t be repeated, but employment gains have clearly slowed.
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Jobs declined by 23,000 in July, but the drop was the result of the reversal of the World Cup job boost and odd summer hiring patterns at local governments. There were 26,000 net jobs lost in food service, and a further 16,000 in sports-related sectors. Food service shed the extra jobs that had been created in May in preparation to serve the large crowds of visitors expected to attend the games. Local governments and schools actually lost 57,000 jobs, which was unusual but probably won’t be repeated. Normal summer hiring surges have been diffused into other months. Still, hiring for K-12 schools has been especially weak this year.
There were other sectors that were also weaker than normal compared with previous months: Health care expanded by a still-robust 22,000 jobs, but that was on the lower end of its monthly average range. Nondurable manufacturing declined by 13,000, a bit more than its usual loss. Superstore retail employment dropped by 21,000, which was unusual for that sector. On the positive side, durable manufacturing added 18,000 jobs, e-commerce delivery picked up 15,000, and construction showed 22,000 net new jobs.
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The new normal for jobs reports going forward is likely to be gains of fewer than 100,000, rather than additions in six digits. Without the special factors mentioned above, the July report would likely have reported a gain of about 60,000. Previously reported gains in May and June were cut in half on revision. Six-digit adds are going to be increasingly rare, partly because the labor force is growing at a slower rate now, due to reduced immigration.
One concern to watch is that the government’s jobs survey of households, which is smaller than the payroll survey of businesses, has been recording large monthly declines this year. The household survey can fluctuate more because of its smaller size, but it could also indicate potential weakness in hiring that may only be discovered later, when the payroll survey’s annual reconciliation is made with the Census of Employment and Wages.
The unemployment rate dipped further in July, to 4.1%, again partly due to a drop in the labor force. More potential workers stopped looking for work and thus were not counted as unemployed, resulting in the lowest labor participation rate since the pandemic. Weekly initial unemployment claims remain low overall.
Average hourly earnings gains rose 3.2% over the past 12 months, down from June’s 3.4% rate. Perhaps this is the beginning of the long-expected slowdown in wage gains, or perhaps it is just the result of a greater share of low-wage hires last month. Another month or two of data are needed to see whether the lower trend will hold, or if it’s a one-month blip. If it is a trend, then it would be another sign of a modest softening in the labor market as a whole.
The lackluster June and July jobs reports will ease concerns at the Federal Reserve that the economy might be overheating. Unless inflation data show a further uptick, it’s likely that the Fed will keep its benchmark short-term interest rate unchanged at its next meeting, on September 16.
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