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U.S. Job Growth Strengthens for Second Straight Month

Strong job growth continued for the second consecutive month, as nonfarm payroll jobs rose by 255,000 in July, according to the U.S. Department of Labor Employment Report issued Aug. 5 (Exhibit 1).

The combined total of 547,000 new jobs for June and Julyexhibit 1 represents the highest two-month total of 2016. (The June total was revised up from 287,000 to 292,000 – the highest single month of job growth since October 2015.)

The U.S. economy has added an average of about 206,000 jobs per month over the past 12 months.

In spite of the surge in new hires, unemployment remained steady at 4.9%. In fact, even after adding more than half a million jobs in the past two months, unemployment is actually up slightly from the 4.7% rate in May, as more Americans continue to enter the workforce seeking employment (Exhibit 2).exhibit 2

The labor force participation rate has edged slightly higher to 62.8% in July from 62.7% in June and 62.6% in May. 

However, the labor participation rate for those in their prime working years (25 to 54) continues to hover near a 30-year low. The participation rate for that demographic was at 83.4% in January 2007 – prior to the Great Recession – and gradually eroded to less than 81% in 2015 for the first time since 1984. It inched up over 81% early this year, and measured 81.2% in July (Exhibit 3).exhibit 3

The job growth has come in several key sectors, according to the report:

  • The professional and business services sector added 70,000 jobs in July and has added 550,000 jobs over the past 12 months.
  • Health care employment increased by 43,000 for the month, with 477,000 jobs added over the past 12 months.
  • Financial activities employment rose by 18,000, with a total of 162,000 new jobs over the past year.
  • Leisure and hospitality continued to move up with 45,000 new jobs for the month.

Here are some other highlights from the report:

  • exhibit 4Average hourly earnings for all employees on private nonfarm payrolls increased by 8 cents in July to $25.69. That represents a 0.3% increase for the month and 2.6% year-over-year, which is a faster pace than inflation. The consumer price index for all urban consumers (CPI-U) had increased by just 1.1% year-over-year through June.
  • The average work week, a leading indicator, increased by 0.1% to 34.5 hours – the first gain in six months (Exhibit 4).
  • Initial unemployment claims, also a leading indicator, remain at a historically low level (Exhibit 5).exhibit 5

We believe the continued strength of the job market will encourage the Fed to raise interest rates eventually. The last rate hike was in December 2015.

We also believe increasing rates would be beneficial to net savers without adversely affecting the economy, the housing market or consumer spending – particularly if the job market remains strong.

Our outlook for 2016 gross domestic product (GDP) growth in the U.S. remains modest at around 1%. That is somewhat lower than the average analyst view of 1.5%, according to the August Blue Chip survey report (which is based on a monthly survey of more than 50 leading business economists).

The 1.5% projection represents a significant drop from the 1.8% average projection a month earlier. Throughout 2016, we have been projecting slightly lower GDP growth than the consensus estimates of the Blue Chip survey.

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