US job growth slows as unemployment rate holds steady

As trade war with China dents the economy, new data make Fed more likely to cut interest rates again next month. 



    Construction payrolls increased by a mere 4,000 jobs in July after increasing by 18,000 the previous month [Mark Wilson/Getty Images/AFP]
    Construction payrolls increased by a mere 4,000 jobs in July after increasing by 18,000 the previous month [Mark Wilson/Getty Images/AFP]

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

    The labor department's highly anticipated monthly employment report on Friday came a day after President Donald Trump announced an additional 10 percent tariff on $300bn worth of Chinese imports starting from September 1, a move that led financial markets essentially to price in a rate cut for September.

    The US central bank on Wednesday cut its short-term interest rate for the first time since 2008. Fed Chairman Jerome Powell described the 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 a global slowdown.

    Nonfarm payrolls increased by 164,000 jobs last month, the government said. However, the economy created 41,000 fewer jobs in May and June than previously reported.

    July's job gains were in line with economists' expectations, though the average workweek fell to its lowest level in nearly two years.

    Even before the release of the employment report, fed funds futures signalled that traders saw a 96 percent chance of the Fed cutting rates again next month, according to CME Group's FedWatch Tool. But some experts do not necessarily see such a move as inevitable.

    "This report won't be enough to move the needle much in either direction as far as a September rate cut is concerned," said Andrew Hunter, an economist with Capital Economics. "The domestic economy is still holding up reasonably well."

    Manufacturing dip

    The US-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 percent annualised growth rate. The economy had grown at a 3.1 percent pace in the first quarter.

    July payrolls marked a further deceleration in job growth from an average of 223,000 per month in 2018.

    But economists say it is unclear whether the loss of momentum in hiring was due to ebbing demand for labour 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 percent in July.

    Yet despite the lowest jobless rate in nearly 50 years, wage growth remains only moderate, contributing to a tame inflation environment - which could support another rate cut next month.

    Inflation has consistently undershot the Fed's two-percent target this year, rising 1.6 percent on a year-on-year basis in June after gaining 1.5 percent in May.

    Average hourly earnings rose 8 cents, or 0.3 percent in July, after the same increase in June. That lifted the annual increase in wages to 3.2 percent in July from 3.1 percent in June.

    The trend in wage gains has slowed from late 2018, when wages were rising at their fastest rate in a decade. Even with the step-down in job and wage gains, the labour 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 coming in around a 1.5 percent.

    Construction payrolls increased by just 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.

    The sector, which accounts for more than 12 percent of the US 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.

    The manufacturing workweek dropped 0.3 hours 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. Government employment increased by 16,000 jobs in July, on top of June's gain of 14,000.

    SOURCE: Reuters news agency