July U.S. Employment, ISM Non-Manufacturing Index

Payroll Jobs Beat Expectations but Unemployment Rate Increases to 8.3 Percent

The July Payroll Employment Survey showed a better-than-expected gain of 163,000 jobs for the month.

  • The Unemployment Rate for July increased to 8.3 percent as the household employment survey dipped.
  • The average workweek was unchanged at 34.5 hours. Average hourly earnings gained 0.1 percent.
  • The ISM Non-Manufacturing Index for July increased to 52.6, indicating ongoing expansion.

The U.S. economy added 163,000 new payroll jobs on net in July, exceeding consensus expectations. That’s the good news. The bad news came from the separate household survey of employment, which determines the unemployment rate. The household survey showed a loss of 195,000 jobs for the month, along with a 50,000 worker decline in the civilian labor force, resulting in a one-tenth increase in the unemployment rate to 8.3 percent for the month. The payroll survey and the household survey are well correlated over the long term, but it is not unusual for the surveys to move in opposite directions in any given month, and the household survey is the more volatile of the two. Frustratingly, this ambiguous combination of better payroll jobs and an increasing unemployment rate does not clarify future Federal Reserve policy actions. There are two upcoming opportunities for new policy announcements from the Fed. The first is the Federal Reserve Economic Policy Symposium at Jackson Hole, Wyoming at the end of August. After that comes the regularly scheduled FOMC meeting on September 17 and 18. At the September meeting the Fed will have the benefit of another month’s worth of employment data (the August jobs report will be released on Friday, September 7). The Fed may maintain “watchful waiting” through Jackson Hole, setting up the August jobs numbers as another trip wire for new policy action in mid-September.

Payroll job gains were well distributed across manufacturing and service industries. Employment in mining and logging was essentially unchanged in July. Construction gave up 1,000 jobs even as residential construction indicators continued to improve. Manufacturing added 25,000, possibly with help from shorter-than-normal summer shut-downs at auto makers. Wholesale trade added 9,200 jobs while retail gained 6,700. Transportation and warehousing added 6,900. Utilities gave up 8,100 but information services added 11,000 jobs. Financial services held steady, gaining 1,000. Professional and business services added a solid 49,000 jobs in July. Education and healthcare was up 38,000. Leisure and hospitality services employment was up 27,000. The government sector continued to shed jobs, down 9,000 for the month, drained by local government education. The ISM non-manufacturing index for July increased slightly to 52.6, indicating ongoing expansion in services and construction, driven by stronger prices and growing inventories. However, the employment sub-index fell to 49.3 for July, indicating cooler hiring.

Market Reaction: U.S. equity prices are up. Treasury bond yields are up. NYMEX crude is up to $90.04/barrel. The dollar is up versus the yen and down against the euro.

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