July Job Gains Below Expectations

Hiring is slumping, especially for the typically robust summer months. U.S. employers added 187,000 new jobs in July, and June's total was downgraded to 185,000 jobs, the Labor Department reported. In contrast, the average monthly employment gain in 2022 was 400,000.

The unemployment rate dipped to 3.5 percent in July from 3.6 percent in June, remaining near a half-century low. The measure has ranged from 3.4 percent to 3.7 percent since March 2022.

"The July jobs report was yet another goldilocks report, showing both cooling and continued resilience in the labor market," said Julia Pollak, chief economist at ZipRecruiter.

"The U.S. labor market is slowing, as expected," said Julius Probst, a labor economist at Appcast. "This is the 20th consecutive month with an unemployment rate at or below 4 percent—one of the longest streaks ever. Prime-age employment is historically high at 80.9 percent. As vacancies continue to fall and job growth slows, the previously overheated U.S. labor market is normalizing quickly now."

Nick Bunker, economic research director for North America at the Indeed Hiring Lab, said that after years of very strong job gains, adding only 187,000 jobs might cause some anxiety. "But monthly gains at this level are still strong given slowing population growth and the overall tightness of the labor market," he said. "In order for the broader economy to pull off the soft landing everyone wants to see, this kind of slowdown is necessary."

A soft landing refers to an outcome where inflation falls back to 2 percent without a recession.

Monster Economist Giacomo Santangelo explained that stability appears to characterize the current labor market. "While the claim of 187,000 jobs is well-below analysts' estimates, it is important to temper this claim with several realities," he said.

He pointed to the revisions in previous months' data which reveal a lower total payroll employment figure than previously reported, emphasizing the need for cautious reading of July's total. In other words, hiring has already been slowing down for some time.

"The U.S. economy is already basically at full employment," Probst said. "With record-low unemployment rates and high prime-age participation rates, drawing more workers into the labor force will become more difficult. Red-hot gains are no longer necessary."  

The latest employment report could also put less pressure on the Federal Reserve to raise interest rates at its next meeting.

"Now that the Fed is no longer predicting a recession, it's important for policymakers to pause any further hikes and allow the data to catch up with what's happening on the ground," said Richard Wahlquist, chief executive officer at the American Staffing Association. "Increased interest rates will drive up unemployment, and every lost career opportunity is meaningful for a U.S. worker."

Industry Breakdown

The number of new jobs varies significantly by industry compared with the widespread job gains that were common earlier in the pandemic recovery.

"Leisure and hospitality, a sector previously powering gains, has now lost much of its steam," Bunker said. "Health care, another sector directly affected by the pandemic, has taken the baton and contributed 34 percent of the gains in July."

Health care was a leader last month, adding 63,000 jobs, said Geno Cutolo, head of Adecco North America. "While different industries may experience more job gains at different times, we're generally optimistic across the board," he said. "We're already getting ready for peak holiday shopping season, when we expect industries like retail, supply chain and logistics and others, to drive demand."

Registered nurse is the most in-demand role across the U.S., said Becky Frankiewicz, president and chief commercial officer of ManpowerGroup. "Looking deeper into the numbers, ManpowerGroup is seeing main street businesses get their shot at scooping up top talent who are wary of blue-chip layoffs," she said. "ManpowerGroup's real-time data shows increases in sales and business development, retail, and hospitality."

Restaurants and bars have added jobs at a slower pace this year after rapidly staffing up in prior years as pandemic restrictions eased. And the report shows that public-sector employers haven't yet fully recovered from all the jobs lost during the first months of the pandemic. Government added 15,000 jobs in July.

Pollak said that interest rate-sensitive industries continued to lag, "feeling the bite of restrictive monetary policy. The information sector lost another 12,000 jobs, having already lost 25,000 earlier in the year. Manufacturing lost 2,000 jobs and mining gained a mere 1,000 jobs."

Construction continued to add jobs (19,000 in July), despite being a traditionally rate-sensitive sector, said Daniel Zhao, Glassdoor senior economist.

Bunker noted a potentially ominous cause for concern in the report: temporary employment, a traditional bellwether of labor market health, declined by over 22,000 jobs in July.

"Staffing companies have a front-row seat to labor market supply and demand," Wahlquist said. "Our staffing company members report that client companies continue to be cautious about filling open positions and adding new ones. However, businesses are still hiring, and temporary employment remains above prepandemic levels."

Unemployment Rate Dips

The unemployment rate is just above the lowest level since 1969. A more encompassing unemployment rate that includes discouraged workers and those holding part-time jobs for economic reasons fell 0.2 percentage point to 6.7 percent.

"Worrying increases in last month's report in the black unemployment rate and the number of underemployed workers working part-time for economic reasons partially reversed, easing fears of a painful downturn," Pollak said. She added that the job-finding rate for unemployed workers rebounded to 31.2 percent after falling to 27.3 percent last month. "That's good news for recently laid off workers and for new grads who are still looking for jobs," she said.

Santangelo said that it is important to keep in mind that about 4 million workers say they have no other option than to work part-time. "We cannot say why they are in this situation, all we can do is note that if they had the opportunity to have full-time employment, they would take it. How can we claim the labor market is healthy as long as this number remains high?"

He added that there's another 5.2 million jobless people who say they want to work but are not officially counted as unemployed due to what the Labor Department defines as inactive job searches, which means they did not actively look for work during the 4 weeks preceding the survey.

Long-term unemployment remained relatively stable in July at 1.2 million, making up about 20 percent of the total unemployed population.

"The prime-age employment-to-population ratio continued to rise, reaching 80.9 percent—the highest since 2001," Pollak said. "While overall labor force participation is still lower than before the pandemic, entirely due to the exodus of older workers, age-weighted participation is actually the highest ever."

Wage Growth

Pay gains have slowed as hiring has cooled. Employers raised pay at the same rate as the previous month, with average hourly earnings slower than last year but remaining well above the prepandemic pace.

"With average hourly earnings up 0.4 percent in July and 4.4 percent over the year, and as demand for workers continues, the ability to offer competitive wages is another area we're watching," Cutolo said.

Zhao said that "while wage growth may not yet be low enough to convince the Federal Reserve that the labor market is in balance, the continued deceleration in wage growth and inflation amid a firm labor market is an encouraging sign that we're still on track for a soft landing."

The Federal Reserve would likely consider 3.5 percent annual wage growth as consistent with inflation near their 2 percent target.