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Jobs report shows labor market solid as economy faces new trade threats

Key Points
  • Job creation was a solid 164,000 in June, wages grew more than expected and the labor market remains strong, but hiring has slowed from last year's levels.
  • The markets, under pressure from the latest trade headlines, took the report in stride and see it as a positive, as new concerns arise for the economy from the threat of more tariffs.
  • "Directionally, it's fine and I certainly think we're at a place where we need good news. We have enough bad news in terms of what's going to be a drag in terms of escalation of trade concerns," said one market strategist.
Twenty/20

Wages picked up and hiring continued to be strong in July but at a much slower pace than last year, reflecting an economy heading toward full employment but still with workers looking to move into the labor force.

The economy added 164,000 nonfarm payrolls in July, nearly as expected, but revisions reduced job growth in May and June by 41,000. That took the three-month average to 140,000 job gains, well off the 200,000-plus levels of last fall. Wages rose 0.3% in July, or 3.2% year over year, and June wage growth was revised higher to the same level.

"It's got a good enough feel to it," said Art Hogan, chief market strategist at National Securities. "The trend is steady as she goes. There was a little bit of a tick up in participation. Directionally, it's fine and I certainly think we're at a place where we need good news. We have enough bad news in terms of what's going to be a drag in terms of escalation of trade concerns."

The typically important jobs report was released Friday morning, and markets took it in stride as stocks remained under pressure from the latest trade developments. Economists say the latest tariff threats increase the potential for an economic slowdown, and even recession, if business turns even more cautious, postponing further spending and ultimately slowing down hiring because of them.

President Donald Trump's escalation of the trade wars Thursday, with a new threat of tariffs on $300 billion in Chinese goods, diverted market focus from the Fed's rate cut Wednesday and Fed Chairman Jerome Powell's seemingly hawkish comment. The market is ignoring Powell's lack of commitment to further hikes, and is now expecting a rate cut in September, to defend the economy from the impact of tariffs.

Economists said the jobs report should have little impact on the Fed, which does not meet until September, after the August jobs report is released.

"The Fed can feel comfortable that they just cut rates. Unfortunately, they're going to have to cut them again because of the headwinds we now face," said Diane Swonk, chief economist at Grant Thornton.

The jobs report was viewed as mostly positive, with a pickup in labor participation to 63%, its highest since March, and the total labor force rising to 163.4 million, setting a record high.

The report is also important in that the job market provides crucial fuel for consumer spending, about two-thirds of the U.S. economy. That so far, has remained strong while business investment has been more cautious due to tariffs and trade friction. Trump's new tariffs would hit many consumer products for the first time.

May's total nonfarm payrolls were revised down to 62,000 and June job creation was trimmed by 31,000 to 193,000. Health-care hiring in July rose 30,000 while professional and technical services added 31,000. Computer systems design and related services rose by 11,000 jobs and was responsible for about a third of employment gains in professional and technical services in July and during the year. .

Manufacturing jobs grew at a better-than-expected pace of 16,000 in a sector that has been feeling the impact of trade conflicts. Hours worked in the sector however, fell by three-tenths to 40.4, the lowest since July 2011.

"We're still bringing workers in to the labor force, so it suggests we're finally tapping some of the slack we missed before," said Swonk, noting teenagers contributed to gains in the workforce. "It's good news. ... Teenagers are finally coming in after a long hiatus."

Swonk said the gains in manufacturing, however, were mostly all auto sector and there could be losses next month with the shuttering of plants in Ohio and Michigan.

Consumer sentiment data, also released Friday, showed a slight improvement over June. July sentiment was in line with the 98.4 reading reported earlier in the month, though it is very slightly below expectations.

Richard Curtin, who runs the survey for the University of Michigan, noted consumers in the survey were the most optimistic since 2003 no the expectations toward their financial situation.

"The job market is good, they are pleased with their income gains, and household net wealth continues to climb as well. It's not that they expect these factors will continue to accelerate, but rather that they expect continued moderate growth in income and jobs. Consumers don't expect much change in the unemployment rate in the year ahead," according to Curtin.