US employment growth is looking resilient after all. Companies added 217,000 jobs in July, the Labor Department reports. Although that’s down from June’s 259,000 gain, it’s clear that the economy is still minting new positions at a healthy pace. As a result, the surprisingly dark profile in May, when private sector employment contracted by 1,000, looks like noise.
The firm rate of growth for payrolls suggests that the prospects are a bit brighter for expecting better news for GDP in the third quarter. In fact, the Atlanta Fed’s GDPNow model is projecting a dramatically stronger Q3 growth rate: 3.7% vs. just 1.2% in Q2 (as of Aug. 4 and before factoring in today’s employment report).
The case for optimism certainly looks stronger given the latest news for jobs. Note, however, that the year-over-year rate of growth for nonfarm payrolls continued to dip, albeit fractionally, through July. Employment increased 1.91% in the first month of Q3 vs. a year ago, down a touch from June’s pace and matching May’s increase for the lowest in three years.
A mildly slower growth rate isn’t particularly worrisome at this stage since the downshift is probably cyclical and reflects the natural aging process that confronts every economic recovery. The peak year-over-year growth rates are almost certainly behind us, but there’s no reason to assume at this point that the decline won’t be slow.
From a business cycle perspective, today’s news reinforces the recent projections for a firmer US macro trend in the near term. Last month’s analysis in the US Business Cycle Risk Report pointed to slightly stronger economic activity in July and August (see last chart in this post) and today’s release fortifies that outlook. Note, too, that this upbeat forecast remained intact in this past weekend’s update of the The US Business Cycle Risk Report, as shown in the chart below that was originally posted in the July 31 issue of the newsletter.
“Labor demand is holding up pretty well,” says Jesse Edgerton, an economist at JPMorgan Chase. “The labor market is firming up. Wages are starting to pick up. It’s a positive for consumer spending. This will reinforce the Fed’s view that improvement in the labor market is likely to continue.”