The economy added 187,000 jobs in July, the Bureau of Labor Statistics reported Friday, reflecting a slowdown in the labor market as the Federal Reserve tightens its monetary policy to try to bring down inflation.
The number of payroll jobs added over the previous two months, adjusted for seasonal variation, was also revised down by 49,000, suggesting that the pace of job growth has fallen off.
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The slowdown could complicate the White House’s efforts to credit President Joe Biden for the strong job creation over the past year.
It also suggests that the Fed’s rate hikes are beginning to have a greater effect on the broader economy and could solidify expectations that the Fed will not raise rates further.
Friday’s report gave a picture of a labor market that is still strong. The unemployment rate ticked down a tenth of a percentage point to 3.5%, a very low figure historically. And job growth is strong enough to suggest underlying momentum in the economy.
Wage gains, too, appear not to be slowing as Fed officials had hoped to see as a sign that inflation pressures are abating. Average hourly earnings for workers in the private sector were up 4.4% in the year ending in July, in line with where they have been for much of the year.
The latest data are “signaling a very gradual moderation in tight conditions,” noted Rubeela Farooqi, the chief U.S. economist for High Frequency Economics. “Fed officials will want to see further evidence of easing, in job growth, wages, and inflation, to more sustainable levels, which will be an important consideration in policy decisions going forward.”
The Fed has carried out a historic effort to tighten monetary policy in response to the inflation that has wracked households over the past few years. Annual inflation, as measured by the consumer price index, fell from more than 9% last June to just over 3% this June.
GDP growth for the second quarter also outpaced consensus expectations at a 2.4% annual rate — showing that the economy is humming right along despite the Fed raising interest rates to the highest level in more than two decades.
The most notable effects of the Fed’s rate hikes have been on the housing market. The average rate on a 30-year fixed-rate mortgage has soared from about 3% at the start of the Fed’s rate-hiking campaign to nearly 7% this month, according to the government-sponsored enterprise Freddie Mac.
Higher rates have pushed home-buying out of reach for many families, leading to a steep drop-off in home sales.
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The construction industry has remained strong. Friday’s report showed the sector adding 19,000 jobs, in line with the healthy gains of the past year.
One reason for the strong construction numbers is that the rise in interest rates has taken a lot of the supply of existing homes for sale off the market — many homeowners don’t want to sell because they have low rates on their mortgages and would have to get new loans at much higher rates if they sold and bought a home elsewhere. The lack of supply of existing homes has put pressure on builders to bring new homes to market, which, in turn, has buoyed employment.
