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U.S. Hiring Cools Slightly in July, Unemployment Rate Falls -- Update

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08/03/2018 | 01:53pm EDT

By Sarah Chaney

Workers enjoyed a strong start to summer, with low unemployment and steady wage gains offering fresh incentive to jump into the job market.

Employers slowed their hiring in July, adding 157,000 to payrolls, but had bulked up more than previously reported in May and June, reflecting robust gains as the economy enters one of the best years of the expansion.

The unemployment rate ticked down to a seasonally adjusted 3.9%, down from 4.0% the prior month to match the best rate in nearly two decades, the Labor Department said Friday.

While July job growth undershot economists' expectation of 190,000, revised figures showed employers added 59,000 more jobs than previously reported the prior two months, pushing the three-month average for job gains to a healthy 224,000.

Economists generally expect hiring to ease in the later stages of an expansion, when workers are in short supply. Instead, through the first seven months of the year, employers added an average of 215,000 a jobs a month, an acceleration from last year's average through July of 184,000 a month.

As employers competed for workers, wages rose 2.7% for all workers in July from a year earlier, matching the rate for non-managers. That is lower than the roughly 4% annual pace for hourly wage gains for non-managers recorded in 2000, the last time the jobless rate held near a similarly low level.

But such wages have advanced at a 2.7% rate or better for the third straight month, the most solid stretch of gains in nine years.

Average hourly earnings for all private-sector workers increased by 7 cents last month to $27.05. The reference week for the establishment survey didn't include the 15th of the month, when many Americans are paid. When that happens, wage data tends to be subdued.

A strong economy and growing paychecks mean more visitors are stopping by The Vineyard and Brewery in Hershey, Pa., to sip wine and beer and listen to concerts. The 60-person company has added about 10 employees to payrolls this year. Michael Wilson, partner at The Vineyard, said the winery plans to hire another one to three employees by year-end.

"People locally have been more apt to come out and enjoy our experiences with their disposable income," said Mr. Wilson, who has also noticed more tourists.

One reason employers have been able to hire is the share of Americans working or looking for work has started to edge up after a long decline.

In July, the share of American adults working or looking for a job held at 62.9% after a June increase. The rate is up slightly from a recent low of 62.3% in 2015, but still near the smallest share of adults participating since the late 1970s, a time when women were still entering the workforce in greater numbers.

The unemployment rate for workers 25 years and older with less than a high-school diploma hit 5.1% last month, the lowest rate for data tracing back to 1992, Labor Department figures show.

Josh Wright, chief economist at iCIMS Inc., said this is a sign employers are becoming open to a wider set of potential hires.

"The labor market has gotten tight so the question is who can you bring on that you can make do with, who you think with a little bit of support and just a little bit of seasoning, they can figure out how to get done the steps you need done to do your business," Mr. Wright said.

July hiring was weak in sectors, such as health care and education, that don't pose broader concerns about the health of the labor market.

"Give me a call when manufacturing drops off a cliff, then I say, 'Oh boy, hit the alarm," said Mr. Wright.

The manufacturing industry added 37,000 jobs in July. Leisure and hospitality, as well as professional and business services expanded payrolls strongly. Government payrolls declined by 13,000.

The Federal Reserve characterized the labor market as strong in its most recent statement Wednesday. The central bank's upbeat assessment of the labor market and broader economic conditions suggests another interest-rate increase is likely at its next meeting.

Possible price increases for foreign products due to tariffs adds another factor that could stoke stronger inflation alongside modestly rising wages, better consumer demand and rising global oil prices.

One question is whether wage growth keeps up. GMM Nonstick Coatings, a 350-employee supplier of coatings for cookware companies like Calphalon, has added about 25 workers this year. Ravin Gandhi, chief executive of the supplier, said adding new hires means competing for highly educated workers, many in research and development.

To compete, it has raised wages about 5% to 6% in the first half of 2018 compared with the same period a year earlier. This marks an acceleration from the 1% to 2% pay raises the company was offering a few years ago.

"It's really hard to get good people," Mr. Gandhi said. "You've got to really roll the red carpet out and go after people and kind of poach them and make them offers they can't refuse."

Still, not everyone is feeling the benefits of a tight labor market pushing up pay.

Taylor Brim, 25, hasn't seen a raise for more than a year.

Meanwhile, the Denver resident's rent increased 7% beginning in July, while her electric and internet bills also climbed. As price increases cut into her paychecks, Ms. Brim, an associate producer for a TV show, has sacrificed regular haircuts and concert outings.

"One of my paychecks is about the cost of my rent," Ms. Brim said.

Friday's report showed the broadest measure of unemployment, including those too discouraged to look for work, plus Americans stuck in part-time jobs who want to work full time, fell to 7.5% from 7.8% the prior month. That rate, known as the U-6, remains somewhat elevated compared with the last time unemployment was similarly low. In April 2000, the broader measure was 6.9%.

--Eric Morath contributed to this article.

Write to Sarah Chaney at sarah.chaney@wsj.com

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