Jobs Report Presages an Accelerating Economy

By Robert Hughes

The broad gains in the July Employment Report from the Labor Department this morning suggests the economy continues to grow at a moderate pace. We continue to expect the economy to post faster growth in the second half of 2015 following the weak first quarter.

Despite the rebound in the jobs data and some firming of wage growth, we believe overall inflationary pressures remain benign. We expect the Fed to implement the first rate hike in the coming months, but to also tilt to the side of caution during the process of policy normalization, implementing additional rate hikes only at a very gradual pace.

Reaccelerating economic growth, benign inflationary pressures, and a cautious Fed should contribute to a favorable environment for U.S. equities over the next few quarters.

The July Employment report showed broad gains, with the economy adding 215,000 jobs for the month; 210,000 from the private sector. Prior months were also revised slightly higher.

Increases in payrolls were widespread and led by strong gains in Professional & Business Services, Education & Health Care, Leisure & Hospitality, Retailing, and Nondurable Goods Manufacturing.

Durable Goods Manufacturing and Mining and Logging were among the few industries to show job losses for the month.

The unemployment rate was unchanged at 5.3 percent.  For the month, 69,000 new entrants to the labor force were added, leaving the participation rate unchanged at 62.6 percent.

Other broader measures of unemployment and underemployment held steady or ticked down by 0.1 percentage points.

Wages rose 0.2 percent and 2.1 percent over the past twelve months.

The combination of jobs gains and higher wages pushed the aggregate weekly payrolls index, a proxy for take-home wages, up 0.6 percent for the month and 4.9 percent over the year. 

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.