Economists React to the July Jobs Report: ‘Will Keep the Fed in Play in September’

 ”A very high level of job gains are still centered in low-wage industries–health, restaurants and retail,” says Steve Blitz of ITG Investment Research.
JUSTIN SULLIVAN/GETTY IMAGES

U.S. employers added 215,000 new jobs in July holding the unemployment rate at 5.3%. Employers have now boosted hiring for 58 straight months and the unemployment rate is where the Federal Reserve expects it to be at the end of the year. The past few months have brought a steady rise in employment and a steady decrease in the unemployment rate but other indicators suggest there’s still ground to be made up in the labor market. Labor-force participation is stuck at 62.6% for the second straight month, the lowest level in almost four decades. And there’s no sign of a breakout in wages. Average hourly earnings have risen 2.1% over the year, a modest pace that’s on par with the postrecession norm. The big question now is whether this report is good enough to prompt Fed officials to raise rates in September or whether they will want to wait a little longer. Here’s what economists had to say about the July jobs report.

“Altogether, we view this report as easily clearing the hurdle needed to keep the Fed on track for a September rate hike, and as such, we continue to look for the first hike in September. Of course, there is still one more jobs report before September that, combined with lingering uncertainty about developments in the external environment, could push the Fed to delay the rate hike cycle; but, we view the bar for not moving as much higher now.” –Rob Martin, Barclays

“The report likely won’t change minds on the Fed either way, but it does represent a modest incremental tightening in labor market conditions; the trend in employment continues to rise faster than the underlying rate of growth of the labor force, keeping downward pressure on the unemployment rate. The unchanged July rate doesn’t matter; the trend is still falling and in all likelihood it will dip to 5.2%, the top of the Fed’s Nairu [full employment] range, in August. Remember the Federal Open Markets Committee statement last week said policy makers want to see ‘some further improvement’ in the labor market before they hike; this report qualifies, in our view, with broad-based employment gains. Only mining is shedding jobs, but the rate of decline has slowed sharply and the July dip was only 5,000.” –Ian Shepherdson, Pantheon Macroeconomics

Inside the Numbers: WSJ’s Justin Lahart analyzes the July employment report and explains why the numbers, despite coming in as expected, could give the Fed pause when it considers interest rate increases. 

“A largely ‘as expected’ report in terms of payrolls, the unemployment rate, and average hourly earnings, with the workweek ticking up instead of remaining unchanged as most had expected. With the underlying trend of job growth remaining solid, there is nothing in this report to dissuade the FOMC from pulling the trigger on Sept. 16 if that is indeed its preference at the moment.” – Joshua Shapiro, MFR, Inc.

“This report easily meets the definition of ‘some’ further improvement in the labor market and further lowers the bar for the notoriously upward revision prone August payrolls to meet this definition (August payrolls have been upwardly revised by 74,000 on average over the last six years, which means 137,000 on the initial release could be viewed as entirely consistent with the trend in payrolls thus far in 2015 but any revisions would come after the September FOMC meeting). We see a rate hike on Sept. 17 as very likely and think the remaining data releases would have to be quite weak to delay liftoff until December.” –John Ryding and Conrad DeQuadros, RDQ Economics

“While the headline job gain was a bit smaller than expected, this is another solid report that, in our view, meets the criteria for “some further improvement” in labor market conditions and thus will keep the Fed in play in September.  The numbers are not strong enough to end the debate, but we remain comfortable with our view that they will take action at that time.” –Michelle Girard, RBS Securities

“The July jobs report came in about as we and the consensus expected.  There is nothing in the report that should dissuade the FOMC from their initial rate increase in September.  The net 215,000 nonfarm jobs created in July brings the year-to-date job creation total to 1.48 million, and the three-month average monthly gain to 235,000.  With only one more employment report before the September FOMC meeting, it would probably take a sharp slowdown in job growth in August, perhaps well below 100,000 jobs or even negative job growth for the FOMC to delay their initial rate hike until December.  Thankfully, there is little to suggest that August job growth will suddenly stall.” –Scott Anderson, Bank of the West

“What the July payroll data mean for the FOMC is that efforts to stall [a] first move in September just got that much harder. The economy, through hiring, shows no signs of rapid acceleration, in fact the pace of job growth is slower this year than last. A very high level of job gains are still centered in low-wage industries–health, restaurants and retail. They add to about 45% of the July gains. And we can [add] to this grouping the 14,400 increase in transportation and warehousing–mostly support activities, couriers, messengers, and storage. Perhaps we can call it the Amazon economy. On the other hand, the more important one, we do see in the data improved levels of hiring tied to residential real estate, in construction and finance.” –Steve Blitz, ITG Investment Research

“The 215,000 rise in July payroll jobs, combined with a combined 14,000 upward revisions to job growth in May and June, is another strong labor market report. This will likely give the FOMC the needed ‘confidence’ to begin raising the Fed funds rate by 25 basis points at their Sept. 16-17 meeting, as reflected in our June baseline interest rate forecast. A similar report for August (released on Sept. 4) would likely be enough to ‘seal the deal’ for a mid-September rate hike.” – Gus Faucher, PNC

Related reading:

Jobs Report: U.S. Businesses Add 215,000 Jobs

July Jobs Report: Everything You Need to Know

The July Jobs Report in 12 Charts

July Jobs Report – The Numbers

Hilsenrath Analysis: July Job Numbers Keep Fed Rate Hike on Track

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