The US economy continues to hobble forward at a cumbersome pace as job growth failed to meet most analysts' expectations, adding 162,000 new jobs in July – the lowest number since January.
At the same time, however, the unemployment rate fell to 7.4 percent, slightly beating expectations and representing the lowest rate of joblessness since President Obama took office.
The weaker-than-expected jobs numbers, reported Friday morning, reveal a slight change in what had been a steady trend: The US economy had posted job gains averaging roughly 195,000 a month during the past few quarters, and most analysts had expected July job growth to continue this tepid but steady trend.
But the Labor Department revised downward the number of jobs created in June, dropping it from 195,000 to 188,000. It also revised May’s number, dropping its previous estimate by 19,000 for a new total of 176,000 jobs created.
The spiritless numbers were anticipated by the Federal Reserve on Wednesday, perhaps, when it downgraded its economic outlook and said the economy was expanding at a "modest" pace, rather than the "moderate" pace seen in June. The Federal Open Market Committee (FOMC) also said it planned to continue current monetary policy, including its stimulus program of quantitative easing, an $85 billion-a-month bond-buying program.
"The report is disappointing, with weaker job growth in July compared to the first half of 2013," PNC senior economist Stuart Hoffman told ABC News. "Despite the drop in the unemployment rate, the softer job growth in July, combined with the downward revisions to May and June, makes the Federal Reserve slightly less likely to reduce its purchases of long-term assets when it next meets in mid-September."
Indeed, analysts had been wondering whether the Fed would begin to “taper” the program after Chairman Ben Bernanke suggested that the central bank would slowly ease back from this stimulus policy, if the employment rate were closer to 7 percent. He also said the Fed would maintain its 0 percent interest-rate policy "at least as long" as the jobless rate stayed above 6.5 percent.
Friday’s report makes it unlikely the FOMC will decide to taper the program in its September meeting.
Worrying many analysts, too, is the fact that the new jobs data show continued increases in the weakest sectors of the economy. Much of the growth is stemming from new positions taken in retail trade and the leisure and hospitality industry – sectors with the lowest-paying jobs and fewest working hours.
Leisure and hospitality added 38,000 new jobs in July, down from 75,000 workers in June. Retail trade added 47,000 new jobs. Those two sectors account for more than half of the new jobs created in July.
Employers' use of part-time and temporary workers, meanwhile, has been surging. The number of involuntary part-time workers held steady at 8.25 million, after jumping by 322,000 to 8.23 million in June. Those individuals marginally attached to the labor force held steady at 1.2 million workers.
Another sign of weakness is the labor force participation rate – the percentage of the labor force employed or actively looking for work. Over the past few months, it has reached its lowest level since 1979, at 63.3 percent. The Labor Department reports July’s rate at 63.4 percent.
The weak numbers also include a slight drop in the average work week for private nonfarm payrolls, to 34.4 hours. Average hourly earnings also ticked down by 2 cents to $23.98 – after a 10-cent increase in June.
Still, the unemployment rate continues to fall slowly but surely. For the year, unemployment is down just under 1 percentage point, with 1.2 million workers leaving the rolls.
“There are encouraging signs in the July report, but the pace and quality of job growth is still troubling,” said Christine Owens, executive director of the National Employment Law Project, in a statement. “Four years into the recovery, nearly 20 million Americans are unemployed or unable to get full-time work, wages are down, and too many new jobs are falling at the low end of the pay scale. Consumer and service industries that pay poverty wages still drive the economy, hardly a recipe for recovery. In addition to the inadequacy of job growth overall, concerns are deepening that the kind of work and wages out there are inadequate to support families or sustain a healthy recovery.”
And investors have been encouraged this week as the number of Americans filing initial claims for unemployment benefits dropped to the lowest level since January 2008, falling to a seasonally adjusted 326,000 claims – a 5-1/2-year low, according to Labor Department statistics released Thursday.
Indeed, Wall Street rejoiced Thursday, responding to a week of otherwise solid economic data. Stocks green-flagged the start of August bullishly as investors started the month with major indexes breaking their record closings – the S&P 500 index crossed Thursday’s finish line at 1,700 for the first time ever, and the Dow Jones Industrial Average climbed 0.83 percent to 15628, another record high.
The markets surged after The Institute for Supply Management released on Thursday a strong manufacturing index of 55.4 percent for July – up from 50.9 percent in June. That’s the highest level since June 2011, although analysts caution there may be seasonal adjustments making these figures so strong.
Still, economic growth has been sluggish, and a troubling gap still exists between the economy’s sub-2 percent growth rate and the generally stronger pace of hiring. On Wednesday, the Commerce Department reported its initial reading on second-quarter gross domestic product (GDP), suggesting that the US economy grew at an annual rate of 1.7 percent – a number that surprised most analysts polled by Bloomberg, who projected slower growth at about 1 percent. During the first quarter, the economy grew at a rate of 1.1 percent, down from previous estimates of 1.8 percent.
However, the Commerce Department’s initial figure is a click lower than last year's 2.8 percent annual growth, revised up from 2.2 percent as Commerce rebenchmarks its data with new methods for calculating the GDP. Total growth for 2013's first half remains a sluggish 1.3 percent.