The Labor Department says the job market continued to heal slowly in July, with the unemployment rate falling to 7.4 percent, the lowest since December 2008. Part of the decline was because more people gave up searching for work. The report indicates that while Main Street America remains cautious about the outlook, the financial markets should be able to bet on the combination of low inflation and central bank accommodation in the months ahead.
A few more jobs, but fewer hours and less money
The number of jobs added was below expectations and the quality of jobs being created remains suspect. The government says private employers added 162,000 jobs last month. Release of the report comes two days after the Federal Reserve described economic growth as modest while signaling increased concern about low inflation. The Fed gave no indication of an immediate decision to begin to scale back on asset purchases.
The retail sector added 47,000 jobs, while bars and restaurants saw a gain of 38,000 jobs.
Average hourly earnings declined during the month and have risen 1.9 percent over the past year. The average workweek also slipped. Analysts have been watching hours worked for signs whether Obamacare is prompting increased caution among employers.
More people drop out
Participation in the labor force dropped slightly to 63.4 percent. The benchmark is watched closely for signs whether Americans are discouraged or feel their employment prospects are rising. The number of discouraged workers, or those not looking for work, stood at 988,000. That number is up 136,000 over the past year.
Manufacturing employment was little changed. The Institute for Supply Management reported earlier that its manufacturing index rose more strongly than expected, while also signaling that employment prospects were rising. At the same time, manufacturers are continuing to contend with weak economic conditions abroad, with both Europe and China recently seeing the slightest level of growth.
What about investors, savers and borrowers?
The lackluster pace of hiring is seen keeping the direction of the bond and stock markets continuing on their recent path. "For the bond market, it gives relief from concerns the Fed is going to tighten rates anytime soon," says John Canally, chief economist for LPL Financial. The result, he says, is that bond yields should remain low. That is a curse for savers, however, who've had to contend with miserly returns on certificates of deposit for years.
For stocks, which have been at record highs, Canally says the report is "pretty much a Goldilocks-type scenario. The economy's still creating jobs, but not creating enough jobs it has to worry the Fed." Canally calls the report "good news on both fronts."
More downbeat on the report is economist Peter Morici, of the Robert H. Smith School of Business, University of Maryland. He noted in a written statement that 103,000 more Americans reported working part time in July. While underscoring recent gains in the retailing and hospitality trades, Morici said "Obamacare's mandates for employer paid health insurance coverage also impel the use of more part-time workers."
Because Obamacare will make it mandatory for larger employers to provide health insurance for full-time workers putting in at least 30 hours a week, there has been growing speculation that employers will opt for more part-timers.
... and the inevitable finger-pointing in DC
In a statement, the White House acknowledged that Washington, D.C., is part of the problem. "The across-the-board budget cuts known as the sequester continue to be a drag on the economy now and in the future," said Alan Krueger, chairman of the Council of Economic Advisers. He says "the administration continues to urge Congress to replace the sequester with balanced deficit reduction, and promote the investments our economy needs to put more Americans back to work, such as by rebuilding our roads and bridges."
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