Hiring in the US in July was far better than expected, defying signs that the economic recovery is losing steam, the Bureau of Labor Statistics reported Friday.
Payrolls, excluding the agricultural sector, increased by 528.000 in July while the unemployment rate fell to 3.5%, better than the Dow Jones estimates by respectively 258.000 e 3,6%.
Wage growth has also increased, specifically the average hourly wage has increased by 0,5% for the month of July and 5,2% compared to the same period a year ago but above all above analysts’ expectations equal to 0,3% e 4,9% respectively.
Markets initially reacted negatively to the report, with Dow Jones futures falling further 200 points.
Leisure and hospitality have especially contributed to the increase in jobs with 96,000 units, followed by the service sector with 89,000 units. While health care added 70.000, public sector payrolls increased by 57,000 units. Goods-producing industries also posted solid gains, with construction up 32,000 and production up 30,000.
Despite bearish expectations, July earnings were the best since February and well above the average increase of 388,000 jobs over the past four months. The BLS statement found that total nonfarm employment of staff increased by 22 millioni since the low of April 2020, when most of the US economy closed to cope with the Covid pandemic.
The office noted that private sector wages are now above the February 2020 level, just prior to the declaration of the pandemic, although government jobs are still lagging behind.
USA, unemployment rate drops to 3.5%
The unemployment rate fell to 3.5% compared to expectations of 3.6%, (3.6% previously) while the participation rate stood at 62.1% compared to 62.2% previously.
The strong labor market number, coupled with higher-than-expected wage numbers, led to a shift in expectations for the rate hike expected for September.
Traders are now considering a greater likelihood of a hike 0.75 points percentages for the next meeting, which would be the third consecutive increase of that amount.
“The macroeconomic figures on the American world of work confirm the words of the President of the FED of St Louis James Bullard who has repeatedly stated that the US economy and especially the world of work are able to sustain a process of rising interest rates. more consistent than market forecasts. In today’s job report, we observed new job creation that doubled consensus expectations, a declining unemployment rate, a favorable revision of previous months’ numbers and higher-than-expected wage growth. Numbers that may justify Powell and other central bankers still being aggressive on interest rate hikes, ” writes Philip Diodovich the IG.
“Now the dilemma for Powell remains only that of not putting too much strain on economic growth in the hope of being able to make a soft landing after a series of rate hikes. After the release of today’s job report, the odds are that US central bankers will considerably take into account a possible 75bp hike in the cost of money at the next meeting in September, ” continues Diodovich. “The possibility that the Fed may be more hawkish than expected has resulted in an immediate appreciation of the dollar on the currency markets and strong selling on equities especially on US tech stocks. “