Economy, hiring up in July, but flat wage growth dampens cheer
08/01/2014 4:11 PM
08/03/2014 4:20 PM
July marked a sixth straight month with 200,000-plus jobs growth, the government said Friday, cementing the view of a firming U.S. economic recovery. Deeper within the numbers, however, was an explanation for why many Americans still don’t feel much better.
Employers added 209,000 non-farm payroll jobs in July, and the streak of six consecutive monthly gains above 200,000 hasn’t happened since 1997. Coming on top of strong economic growth and auto sales numbers this week, it allowed President Barack Obama to bask in the glow of a good week for the economy.
“Companies are investing, consumers are spending, American manufacturing, energy, technology, autos, all are booming,” Obama said at the start of a hastily called Friday news conference. “And thanks to the decisions that we’ve made and the grit and resilience of the American people, we’ve recovered faster and come farther from the recession than almost any other advanced country on Earth.”
The unemployment rate ticked up a tenth of a percentage point to 6.2 percent, not surprising as more Americans who had given up are returning to the labor force and seeking work.
“It was as good a report on the job market as could be asked for,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “Job growth is strong and broad-based, and should allay concerns that the Federal Reserve will need to raise interest rates soon.”
The Federal Reserve has progressively scaled back its huge purchases of government and mortgage bonds, a practice that since early 2013 has juiced the stock market and kept rates for mortgages, car loans and home improvement unusually low. The Fed is expected to end the bond buying in October.
Sizzling second-quarter numbers released Wednesday by the Commerce Department showed the U.S. economy grew at an annual rate of 4 percent from April to June, after contracting in the first three months of 2014. That would normally be good news for financial markets, but they responded with a huge selloff of stocks on Thursday and another down day Friday.
Markets fret a return to a world without Fed stimulus, and the strong economic indicators mean the potential for a faster-than-expected return to higher interest rates after almost six years near zero.
There are also concerns that the accelerating economy could spark inflation, which the Fed traditionally combats with higher interest rates. Friday’s employment report, however, should help dampen any fear that wage pressures are about to unleash an upward spiral.
Average hourly wages of U.S. workers on private payrolls inched up just $0.01 in July compared with June. Since last August hourly earnings have increased only 2 percent. That’s roughly the same as the change in consumer prices over the past 12 months. American employees are treading water, with virtually no gain in purchasing power.
This helps explain why so many Americans don’t feel a recovery that data clearly suggests is happening.
“Despite the good news on jobs, most of us won’t feel very good until wage growth picks up,” said Zandi. “There are still too many unemployed and underemployed. But if current trend lines continue, wages will be rising more quickly on a consistent basis by this time next year.”
And this time next year is when the Fed is expected to begin raising interest rates, making it more costly for consumers and businesses to borrow but ending nearly a decade of unusually low lending rates.
The slight gain in the unemployment rate is not a bad thing, since it reflected a corresponding rise in the labor force participation rate. Economists expect the jobless rate to inch up as an improving economy lures more people back into seeking employment after they’d dropped out of the workforce earlier.
“Recent data suggest the participation rate is starting to inch up as a strong labor market draws job candidates back into the hunt,” Ethan Harris, global economist for Bank of America Merrill Lynch, said in a note to investors Friday. “We expect this to continue in the year ahead, slowing the pace of decline in the unemployment rate.”
Within the jobs numbers, most of the news was good.
The hard-hit construction sector added 22,000 jobs in July, while the white-collar professional and business services sector led all others with 47,000 jobs. The retail sector continues to bounce back from a sluggish start to 2014.
“The increase was due in part to seasonal hiring as well as improved business and consumer conditions,” said Jack Kleinhenz, chief economist for the National Retail Federation. “No one can guarantee smooth sailing ahead even though overall retail payrolls are encouraging.”
The manufacturing sector also saw robust hiring in July, adding another 28,000 jobs. Since last August, the sector has averaged 15,000 new hires per month.
“This suggests that the pickup in demand and output seen in other indicators have led to increased hiring, which is definitely encouraging,” said Chad Moutray, chief economist for the National Association of Manufacturers.
The one laggard in Friday’s report was health care, which helped boost otherwise weak jobs reports as the economy came out of the Great Recession in 2009 and 2010. In July, the health care sector added just 7,000 jobs, and hospitals continued to pare them.
Lesley Clark of the Washington Bureau contributed.
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