We recently published a note updating our views on monetary policy, particularly in light of recent trade developments and the reaction in financial markets. We now expect the second fund’s rate cut this year to come in September.
The July jobs report was generally solid, but hours were soft, and this was related to weakness in manufacturing. The results from the household survey were generally strong. Both employment and the labor force increased. The unemployment rate remained at 3.7%, and the participation rate increased by a tenth. The broader U-6 rate declined two-tenths to 7.0%.
As for the establishment survey, payrolls increased 164K in July, and previous months’ gains were revised down a total of 41K. We’d characterize the jobs figures as pretty good. Both the three- and six-month average monthly gains fell to around 140K from around 170K, but in both cases, the declines were made more striking by base effects. So far this year, payroll gains have averaged 165K per month. The pace of job gains has slowed meaningfully relative to 2018 when on average 223K jobs were added per month. But the trend still looks good, and there’s no sign of a recent, more abrupt deterioration. There wasn’t much change in the story on wages. Average hourly earnings were a bit on the firm side, increasing 0.3% in July, and the 12-month change edged back up to 3.2%.
As noted above, the data on hours were soft. The average workweek, which for some time has fluctuated between 34.4 and 34.5, edged down a tenth to 34.3. That resulted in a 0.2% decline in aggregate hours in July despite the solid increase in payrolls. Aggregate hours have been moving essentially sideways recently, growing at only a 0.2% annualized pace over the last six months.
The softness in the average workweek has been related to weakness in manufacturing. With respect to manufacturing, this jobs report was not great, though it wasn’t all bad. The good news was that manufacturing payrolls increased a better-than-expected 16K in July, with payrolls for production and nonsupervisory employees increasing 21K following four straight monthly declines. But the data on hours worked were much less heartening. Previous data releases have shown gains in May and June for both manufacturing output (Fed’s industrial production report) and aggregate hours. Today’s employment report revealed a decline in aggregate hours in manufacturing in July. The average workweek for manufacturing fell three-tenths in July to 40.4, its lowest level since November 2011. That resulted in aggregate hours in manufacturing declining six-tenths in July despite the better-than-expected payroll print for that sector. In addition to the decline in the average workweek for manufacturing, the average workweek for other goods
producing sectors, most notably construction, also declined in July.