The economy added 114,000 jobs in July, and the unemployment rate rose to 4.3%, the Bureau of Labor Statistics reported Friday. Investors had expected roughly 176,000 new jobs and for the unemployment rate to hold steady at 4.1%.
The interpretation
“It’s a scare, I think is the headline,” Robert Frick, corporate economist at Navy Federal Credit Union, told the Washington Examiner. “The job market has been drifting into what we thought would be a nice model of about 150,000, 160,000 jobs a month … but whether it’s an aberration or not, hard to say.”
What it means … for Biden
The report is some unwelcome news for President Joe Biden, who is suffering from high disapproval ratings related to his handling of the economy. Democrats and presumptive presidential nominee Kamala Harris are running low on time to turn around voter perceptions of the party’s handling of the economy before the election.
Friday’s report shows a slowdown in jobs growth. The last time the unemployment rate was as high as it is now was October 2021.
What it means for … the Fed
The Federal Reserve is likely to interpret the slower job growth in July as an indication that its efforts to tame inflation via interest rate hikes are beginning to affect the momentum in the economy.
The report does show some cooling in the labor market. If subsequent reports continue to show employment growth slowing, or reversing course, it could accelerate the pace of rate cuts. Investors expect the first rate cut to come in September.
The underlying reality
It is important not to read too much into any one jobs report. The payroll numbers bounce around from month to month and are revised in subsequent reports.
Instead, it is helpful to look at the trend. The three-month moving average of job gains slowed to 170,000.
Roughly 110,000 new payroll jobs are needed each month to keep unemployment from rising, according to the Federal Reserve Bank of Atlanta. Note, though, that a separate estimate that takes into account the full extent of recent immigration puts the number as high as 200,000.
Prime-age employment, relative to the overall population, is strong by historical standards.
Recession watch
The unemployment rate, taken from the jobs report’s household survey, is still low by historical standards, but it is creeping up.
Recessions entail a rising unemployment rate.
Friday’s data suggest that the United States has triggered one major recession indicator — when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. This indicator, known as the Sahm Rule, signaled the start of all post-war recessions.
Industries to watch
The leisure and hospitality sector is just above the levels of employment it reached in February 2020, right before restaurants and bars were forced to shut down across the country.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Construction employment has remained robust, even as the housing market has taken a massive hit over the past few years as mortgage rates have soared alongside the Fed’s rate hikes. That’s in part because of a huge backlog of construction of multifamily housing over recent months. Economists will watch closely for any sign of slowing hiring in construction.
Unemployment rates by race/ethnicity
The household survey also includes unemployment rates by race and ethnicity. Rates for all groups neared record lows in the past few years but have drifted up recently.
