Broad-Based Job Growth in July

The U.S. labor market just posted its best two months of job growth so far this year. Non-farm payrolls came in at 225,000 for July, and June was upwardly revised to 292,000. The unemployment rate remained unchanged at 4.9%, but the labor participation rate improved by 0.1% to 62.8%, offsetting concerns about the lack of a drop in unemployment. Average hourly earnings were higher than expected month over month at 0.3% vs 0.2%. Solid job growth came from U.S. consumer-supported and goods-producing sectors such as construction, manufacturing and business services. This report shows that labor market growth remains intact, and it potentially reduces near-term recession risk for the U.S. economy. The report also increases the prospect of at least one FOMC rate hike in 2016, despite the weak Q2 GDP report. Although this month and last month’s reports were quite strong, job creation is a little weaker this year relative to 2015. The one-year moving average for net jobs added per month was 204,000 in 2015 versus 189,000 over the last six months. In all, the July non-farm payroll report is a strong one, which reduces the chances of near-term recession and may give the FOMC more confidence to continue its slow pace of rate hikes.

Sources: Bloomberg News, Barclays and SNWAM Research