U.S. job growth slowed more than expected in July and an unexpected rise in the unemployment rate pointed to some slack in the labor market that could give the Federal Reserve room to keep interest rates low for a while.
KEY POINTS:
* Nonfarm payrolls increased 209,000 last month after surging by 298,000 in June, the Labor Department said on Friday.
* Data for May and June were revised to show a total of 15,000 more jobs created than previously reported, showing underlying momentum.
* July marked the sixth straight month that employment has expanded by more than 200,000 jobs, a stretch last seen in 1997. The one tenth of a percentage point increase in the unemployment rate to 6.2 percent came as more people entered the labor market, a sign of confidence in the job market.
* Average hourly earnings, which are being closely monitored as a potential signal of reduced slack that could prompt the Fed to raise rates, rose only one cent.
* That left the annual rate of increase at 2.0 percent, still well below the levels that would make Fed officials nervous. Fed officials on Wednesday cautioned that "significant" slack remained, signaling patience on the rate front.
COMMENTS:
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISOR AT ALLIANZ, NEWPORT BEACH, CALIF.:
"It's a goldilocks report for an economy that is steadily expanding but not lifting off. It will reinforce for now the Federal Reserve's commitment to a gradualist policy approach."
SARAH HOUSE, ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:
"On balance it was still pretty positive, we saw job growth come in a little bit lower than expected, but it's still over 200,000 and the trend remains overall very strong. We did see the unemployment rate tick up, but that looks like it had to do a lot with folks coming back into the workforce so that's an encouraging sign.
"One thing that's gotten a lot of attention lately is average hourly wage growth and we were expecting a pick up there but that was flat over the past month, so that's a little bit puzzling as we have seen labor markets slack decline, pretty sharply and across other measures over the past year.
"That's something we'll be watching and certainly the Fed's watching, that and looking to that as a measure of slack in the labor market. The fact that we didn't see that pick up this month I think will probably reassure the Fed that their guidance that we're still not going to raise rates for a while is on track."
JIM KOCHAN, CHIEF FIXED-INCOME STRATEGIST AT WELLS FARGO FUNDS MANAGEMENT, LLC, MENOMONEE FALLS, WISCONSIN:
"A smaller increase in payroll employment than predicted. The three-month average monthly increase is now 245,000 which is probably a good measure of the trend of monthly increases. Household employment rose moderately but since the labor force increased by 329,000, the unemployment rate went up. Average hourly earnings did not increase. Thus, Federal Reserve chair Janet Yellen can argue that there are still few signs of tightness in the labor market. Also, the U6 measure of unemployment ticked up to 12.2 percent, another sign of 'underutilization of labor resources' as written in the FOMC statement on Wednesday.
"Bottom line, the report is consistent with Ms. Yellen's view that it is too early for the Fed to be contemplating a 'liftoff' in the fed funds rate. The Treasury market had sold off out of concern that the report today plus the GDP report would push forward that liftoff. Now, that looks less likely. I think the range for the 10-year Treasury yield will be around 2.50-3 percent for the remainder of the year."
RYAN SWEET, SENIOR ECONOMIST, MOODY'S ANALYTICS, WEST CHESTER, PENNSYLVANIA:
"The labor market took a step back, but it didn't raise any red flags. The job market continues to move forward. We have absorbed a lot of slack, but we still have a long way to go. For the Fed, they are focused on wages. Wage growth has been mediocre. Consumers are just spending what is in their pocket. We need more wage growth to see a pickup in inflation. For now, with little wage inflation, this will buy the Fed time to hold rates near zero. They are no hurry to raise rates based on their last policy statement. We also need higher wage growth to raise the participation rate."
JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON, D.C.:
"The headline story is on the soft side of expectations. Still, a solid report overall. But the big story here is the continued lack of wage growth. So, this number being on the soft side and showing no wage growth helps dial down wage growth on the Fed to consider an early rate rise.
"For the dollar, this is a good place to cash in some profits. The dollar may have become a bit overly stretched. We are going to have to see some wage growth to help justify these elevated levels for the greenback."
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK:
"The biggest disappointment was the flat wage print, the market was running scared after yesterday's outperformance of the employment cost index, and this helped ease some of the fears that the Fed would be hiking tomorrow, which was how the market was trading going into this report. Overall it's a pretty positive report, it's the sixth straight month above 200,000, we have positive revisions and inflows into the labor force. The only really disappointing part of it is wages, and that should help calm the market."
SEAN LYNCH, MANAGING DIRECTOR OF GLOBAL EQUITY AND RESEARCH STRATEGY, WELLS FARGO PRIVATE BANK, OMAHA, NEBRASKA:
"You take a little bit of the talk of the risk off of (a rate hike) coming in earlier expected. The worry was that bad news would be bad for the market and good news would be bad for the market and we and we came right down the middle with this report so we saw some nice movement in the futures. It still points to a job market and an economy that is improving, but we also have the absence of wage pressures building which is becoming another concern for investors."
MARK GRANT, MANAGING DIRECTOR, SOUTHWEST SECURITIES, FORT LAUDERDALE, FLORIDA:
"The report showed decent growth but nothing extraordinary. Nothing to get excited about. But this won't force the Fed to raise rates anytime soon, and given all the fear that was out there yesterday, it makes sense to me that futures would come back so strongly. There was also an immediate effect on the bond market, where the 10-year went from significantly negative to positive. I think the 10-year could go to 2 percent."
MARKET REACTION:
STOCKS: Index futures pared losses
BONDS: Treasury yields fell as prices rose
FOREX: The dollar slipped against the euro and yen
(Americas Economics and Markets Desk; +1-646 223-6300)
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