Solid Jobs Report Bolsters Case for Fed Interest Rate Hike

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Ross D. Franklin/APA State Farm employee, back left, helps an attendee during a State Farm Career Fair in Phoenix.
By Lucia Mutikani

WASHINGTON -- U.S. employment rose at a solid clip in July and wages rebounded after a surprise stall in the prior month, signs of an improving economy that opened the door wider to a Federal Reserve interest rate increase in September.

Nonfarm payrolls increased 215,000 last month as a pickup in construction and manufacturing jobs offset further declines in the mining sector, the Labor Department said Friday. The unemployment rate held at a seven-year low of 5.3 percent.

%VIRTUAL-pullquote-We view this report as easily clearing the hurdle needed to keep the Fed on track for a September rate hike.%Payrolls data for May and June were revised to show 14,000 more jobs created than previously reported. In addition, the average workweek increased to 34.6 hours, the most since February, from 34.5 hours in June.

"We view this report as easily clearing the hurdle needed to keep the Fed on track for a September rate hike. The bar for not moving now is much higher," said Rob Martin, an economist at Barclays in New York.

The Fed last month upgraded its assessment of the labor market, describing it as continuing to "improve, with solid job gains and declining unemployment."

The U.S. central bank said its policy-setting committee anticipated it would be appropriate to raise lending rates when it has seen "some further improvement" in the job market. It hasn't raised rates since 2006.

U.S. stocks fell after the jobs data as traders saw a greater chance of a rate hike next month. The dollar rose to near a four-month high against a basket of currencies before weakening. Prices for longer-dated U.S. Treasuries were up.

Though hiring has slowed from last year's robust pace -- mostly because of job losses in the energy sector -- it remains at double the rate needed to keep up with population growth.

Average hourly earnings increased 5 cents, or 0.2 percent, last month after being flat in June. That put them 2.1 percent above the year-ago level, but well shy of the 3.5 percent growth rate economists associate with full employment.

Still, the gain supported views that a sharp slowdown in compensation growth in the second quarter and consumer spending in June were temporary. The aggregate weekly payrolls index, a proxy for take-home wages, rose 0.6 percent in July and was up 4.9 percent from a year ago.

Economists had forecast nonfarm payrolls increasing 223,000 last month and wages rising 0.2 percent.

Wage Vigil

Wage growth has been disappointingly slow. But tightening labor market conditions and decisions by several state and local governments to raise their minimum wage have fueled expectations of a pickup.

In addition, a number of retailers, including Walmart (WMT), the nation's largest private employer, Target (TGT) and TJX Cos. (TJX) have increased pay for hourly workers.

The jobless rate is near the 5 to 5.2 percent range most Fed officials think is consistent with a steady but low level of inflation.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they can't find full-time employment fell 0.1 percentage point to a seven-year low of 10.4 percent in July.

The short-term unemployment rate slipped to 3.8 percent from 3.9 percent in June, while the jobless rate for the long-term unemployed held steady at 1.4 percent.

But the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, held at a more than 37½-year low of 62.6 percent.

The fairly healthy employment report added to robust July automobile sales and service industries data in suggesting the economy continues to gather momentum after growing at a 2.3 percent annual rate in the second quarter.

Last month's increase in the workweek together with the solid payrolls gain lifted the index of total hours worked by 0.5 percent, the largest rise since October. The hours worked index is seen as a proxy for gross domestic product.

Hitting the Goal

"We think this represents another solid employment report that meets the criteria for 'some further improvement' in the labor market and keeps the Fed in play for September," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.

Employment gains in July were broad-based, with the share of industries adding jobs hitting a seven-month high. Construction payrolls rose 6,000 thanks to a strengthening housing market, after being unchanged in June.

Factory payrolls increased 15,000 after rising 2,000 in June. The retail sector added 35,900 jobs.

Professional and business services payrolls gained 40,000 after increasing 69,000 in June. The slowdown reflected a drop of 8,900 in temporary employment, which was the weakest reading since September 2012.

More layoffs in the energy sector, which is grappling with last year's sharp decline in crude oil prices, were a drag on mining payrolls, which shed 4,000 jobs in July. The mining sector has lost 78,000 jobs since December.

Oilfield giants Schlumberger (SLM) and Halliburton (HAL) and many others in the oil and gas industry have announced thousands of job cuts in the past few months.

9 Numbers That'll Tell You How the Economy's Really Doing
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Solid Jobs Report Bolsters Case for Fed Interest Rate Hike
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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