The US economy added 215,000 jobs in July, while the unemployment rate remained steady at 5.3%, meeting expectations. The numbers released by the Department of Labor on Friday heighten expectations that the Federal Reserve will raise interest rates as soon as September.
Economists expected US employment to have grown by 225,000 jobs last month, and for the unemployment rate to hold at a seven-year low of 5.3%. So far this year, job gains have averaged 208,000 a month.
While the number of jobs added came in just shy of forecastsi “it’s still yet another solid employment report”, said Chris Williamson, chief economist at Markit. “With the Fed’s decision on the timing of the first rate rise being ‘data dependent’, today’s report does nothing to discourage the belief that a September hike is very much on the table, albeit by no means a done deal.”
Last week, applications for unemployment benefits increased by 3,000 to about 270,000. The four-week average dropped to 268,250, close to levels last seen in 2000. Such near-historic lows point to a healthy job market, according to economists.
“Initial claims for unemployment insurance have been below 300,000 for 22 straight weeks, the longest such stretch since 1973,” said Gus Faucher, senior economist at PNC Financial Services. “Claims are running at a pace consistent with monthly job growth of better than 200,000.”
Another increase of more than 200,000 jobs implies a continued downtrend in unemployment, according to Jim O’Sullivan, chief US economist at High Frequency Economics. Such a downtrend would reinforce the Fed’s assessment of the jobs market and recent employment gains as “solid” and get the unemployment rate within the 5% to 5.2% range that most Fed officials consider to be consistent with full employment.
The Fed is expected to raise interests rates in September, for the first time in nearly a decade. Testifying in front of Congress in July, Fed chair Janet Yellen said the US central bank had no judgement about “the appropriate date to raise the federal funds rate” but that it might be better to do so sooner than later.
“If we wait longer [to raise rates] it certainly could mean that when we begin to raise rates we might have to do so more rapidly,” she warned. “So an advantage to beginning a little bit earlier is that we might have a more gradual path of rate increases.”
Jerome Powell, a Federal Reserve governor, said earlier this week that nothing had been decided and that whether the Fed raises interests rates will depend on the data to be released before the September Fed meeting. Yet earlier in June, he indicated that he too would support gradual rate increases.
“My own forecast calls for liftoff in September and for an additional increase in December,” he said.
Probably the most assertive and outspoken in his support of raising the interest rates in September has been Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.
“I think there is a high bar right now to not acting, speaking for myself,” he told the Wall Street Journal. “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.”
“Any Fed tightening cycle when it does occur is likely to be very modest. Low inflation and cooling growth will create powerful arguments against rate hikes,” said Williamson, the Markit economist, pointing out that wages have only gone up 2.1% over the last year.
According to the Economic Policy Institute, without the 3%-4% wage growth, average workers will not benefit from the economic growth.
While speaking before Congress, Yellen said that she was concerned with rising inequality and the impact it had on African Americans and their unemployment, but that there was little she could do about it.
“We don’t have the tools to be able to address the structure of unemployment across groups, but a stronger economy generally really does tend to be beneficial to all Americans and that’s what we are working towards,” she said.
The unemployment rate for black Americans dropped to 9.1% in July from 9.6% in June.
