August 9, 2016
- Exceptional payroll growth in July and upward revisions to job gains in the preceding two months underline the persistent strength of the U.S. economy, which is now in its seventh year of expansion. Secondary indicators of labor market activity, including unemployment claims, the unemployment rate and wage growth, reinforce the strengthening trend and diminish some of the negative mixed signals in other economic data points. The combination of positive labor market trends will support additional spending by U.S. households in the coming months and maintain a modest pace of economic growth.
- U.S. employers added 255,000 jobs in July and the combined total of the preceding two months was revised upward 18,000 positions. Office-based businesses contributed significantly in July, adding 70,000 workers in professional and business services and a respectable increase in financial services staffing. Job gains last month were also broadly distributed, with bars and restaurants accounting for most of the 45,000 positions created in leisure and hospitality. A change in consumers’ dining habits that favors more frequent dining out will maintain hiring in the sector. The addition of approximately 15,000 retail positions rounds out a solid month of hiring in industries with direct contact with consumers. Only natural resources and mining among the private employment sectors posted a loss of jobs last month. The decline comes amid greater downward pressure on oil prices.
- Wage growth appears to be gaining traction, with the average hourly wage advancing 2.6 percent over the past year following a respectable increase in July. The pace of wage growth in excess of the rate of inflation will underpin real gains in consumer spending in the coming months. In addition to higher pay, the unemployment rate held steady at 4.9 percent, near the Federal Reserve’s measure of full employment, and the underemployment rate was beneath 10 percent for the tenth consecutive month. Both trends raise the potential of action by the central bank on its benchmark rate when it meets next month.
- The expansion in professional and business services included more than 37,000 new hires in fields that include architects, accountants and attorneys. An additional 17,000 temporary positions were also created. Rising temporary employment is a forward-looking indicator of continued strength in hiring. Expanding office-using payrolls will drive net absorption of 86.5 million square feet this year to reduce vacancy to 14.8 percent.
- Staffing gains in the retail sector in July occurred after U.S. retail vacancy hit a multiyear low in the second quarter. New openings by retailers and other shopping center tenants underpinned net absorption of more than 24 million square feet in the period and reduced the U.S. vacancy rate to 5.8 percent. Growing demand and subdued construction will maintain the vacancy rate near 6 percent this year.