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Home Lead Story US Employment Growth Rate Decelerate While Wages Pick Up Comparatively

US Employment Growth Rate Decelerate While Wages Pick Up Comparatively

The trend in wage gains has slowed from late 2018 when wages were rising at their fastest rate in a decade

U.S. job growth slowed in July and wages picked up moderately, which together with an escalation in trade tensions between the United States and China could give the Federal Reserve ammunition to cut interest rates again next month.

The Labor Department’s closely watched monthly employment report on Friday came a day after President Donald Trump announced an additional 10% tariff on $300 billion worth of Chinese imports starting Sept. 1, a move that led financial markets to almost fully price in a rate cut in September.

The U.S. central bank on Wednesday cut its short-term interest rate for the first time since 2008. Fed Chairman Jerome Powell described the widely anticipated 25-basis-point monetary policy easing as insurance against downside risks to the 10-year old economic expansion, the longest in history, from trade tensions and slowing global growth.

Nonfarm payrolls increased by 164,000 jobs last month, the government said. The economy created 41,000 fewer jobs in May and June than previously reported. July’s job gains were in line with economists’ expectations. The average workweek fell to its lowest level in nearly two years. Before the release of the employment report, fed funds futures implied traders saw a 96% chance of the Fed cutting rates again next month, according to CME Group’s FedWatch tool.

employment growth rate
The economy created 41,000 fewer jobs in May and June than previously reported. Pixabay

The U.S.-China trade war is taking a toll on manufacturing, with production declining for two straight quarters. Business investment has also been hit, contracting in the second quarter for the first time in more than three years and contributing to holding back the economy to a 2.1% annualized growth rate. The economy grew at a 3.1% pace in the first quarter.

July payrolls marked a further deceleration in job growth from an average of 223,000 per month in 2018. Economists say it is unclear whether the loss of momentum in hiring was due to ebbing demand for labor or a shortage of qualified workers.

Still, the pace of job growth remains well above the roughly 100,000 needed per month to keep up with growth in the working-age population. The unemployment rate was unchanged at 3.7% in July.

Despite the lowest jobless rate in nearly 50 years, wage growth remains moderate, contributing to a tame inflation environment, which could be supportive of another rate cut next month. Inflation has undershot the Fed’s 2% target this year, rising 1.6% on a year-on-year basis in June after gaining 1.5% in May.

Average hourly earnings rose 8 cents, or 0.3% in July, after the same increase in June. That lifted the annual increase in wages to 3.2% in July from 3.1% in June. The trend in wage gains has slowed from late 2018 when wages were rising at their fastest rate in a decade.

employment growth rate, wages
The trend in wage gains has slowed from late 2018 when wages were rising at their fastest rate in a decade. Pixabay

Even with the step-down in job and wage gains, the labor market is supporting the economy as the stimulus from last year’s $1.5 trillion tax cut package fades. Economic growth in the third quarter is seen at around a 1.5% rate.

Construction payrolls increased by 4,000 jobs after shooting up by 18,000 jobs in June. Manufacturing employment rose by 16,000 jobs after increasing by 12,000 in June. The strong manufacturing job gains are at odds with weakening activity in the sector. A survey on Thursday showed manufacturing employment hit its lowest level since November 2016 in July.

ALSO READ: Huawei Remains No. 2 Global Smartphone Vendor Despite Tough US Sanctions

The sector, which accounts for more than 12% of the U.S. economy, is being hobbled by trade tensions, weakening global growth, an inventory bulge – concentrated in the automotive industry – and design problems at aerospace giant Boeing Co . Factory workers put in fewer hours last month.

The manufacturing workweek dropped 0.3 hour to 40.4 hours, the lowest since November 2011. That contributed to the overall average workweek falling to 34.3 hours, the fewest since September 2017, from 34.4 hours in June. Government employment increased by 16,000 jobs in July, adding to June’s gain of 14,000. (VOA)

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