NFP: U.S. adds 75K jobs vs 175K expected, least in 3 months

by Ike Obudulu Last updated on July 5th, 2019,

Washington: U.S. employers last month added the fewest workers in three months as wage gains cooled, suggesting broader economic weakness and likely boosting calls for a Federal Reserve interest-rate cut as President Donald Trump’s trade policies weigh on the economy.

Payrolls rose 75,000 after a downwardly revised 224,000 advance the prior month, according to a Labor Department report Friday that missed all estimates in economist’s survey calling for 175,000. The jobless rate held at a 49-year low of 3.6% while average hourly earnings climbed 3.1% from a year earlier, less than projected.

The surprisingly sour data signal the labor market, a pillar of strength for an economy headed for a record expansion, was facing new pressures even before Trump threatened tariffs on Mexican goods in addition to proposed higher levies on Chinese imports. Retail sales, factory output and home purchases have shown the economy struggling this quarter after better-than- expected growth in the first three months of the year.

Fed policy makers have described the economy as solid, though recent remarks from Chairman Jerome Powell signaled openness to lower rates if needed. St. Louis Fed President James Bullard, who votes on policy this year, this week became the first official to indicate likely support for a rate cut; others suggested they’re waiting for more data.

As the world’s largest economy nears its longest-ever expansion in July, the employment report may amplify rhetoric that Fed rate cuts are needed to support growth.

Revisions subtracted 75,000 jobs from the prior two months, bringing the three-month average to 151,000.
Broad Weakness

Payroll changes by industry showed broad weakness. Manufacturing growth slowed to 3,000 jobs, as forecast, while construction employment expanded by 4,000, down from the prior month. Professional and business services added 33,000, about half the prior month’s number.

Retail jobs fell by 7,600 for a fourth-straight drop while transportation and warehousing and nondurable goods also slipped. Government payrolls contracted by 15,000, highlighted by drops in state and local education.

Average hourly earnings rose 0.2% from the prior month, missing estimates. That indicates the tight labor market may offer limited support for consumer spending.

The participation rate, or share of working-age people in the labor force, held at 62.8%. The average workweek for all private employees was unchanged at 34.4 hours.

The U-6, or underemployment rate, fell to 7.1% from 7.3%; the gauge includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking.

Private employment grew by 90,000 after a downwardly revised 205,000 increase. This follows ADP Research Institute data earlier this week that showed companies added the fewest workers since 2010 in May.

Economists survey had projected 3.6% unemployment and annual wage gains at 3.2%.

Nonfarm Payroll (NFP) Report

The Nonfarm Payroll (NFP) report is released on  the first Friday of every month at 8:30 AM ET (Eastern Time) by the U.S. Bureau of Labor Statistics. NFP is a highly anticipated economic report which signals the strength of the US economy. It reveals the health of the jobs market, which filters down into inflation

It is closely analysed to predict Gross Domestic Product (GDP) growth and inflation rates and has the power to move global financial markets.

Economic indicators in the NFP report that markets and policy makers care about the most are Non-Farm Employment Change, Average Hourly Earnings and the Unemployment Rate:

Non-Farm Employment Change

Non-Farm Employment Change measures change in the number of employed people during the previous month, excluding the farming industry. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity

Average Hourly Earnings

The wages growth data, Average Hourly Earnings, measures change in the price businesses pay for labor, excluding the farming industry. It’s a leading indicator of consumer inflation – when businesses pay more for labor the higher costs are usually passed on to the consumer;

Unemployment Rate

Unemployment Rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month.

Although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions.

Unemployment is also a major consideration for those steering the country’s monetary policy, especially the Federal Open Market Committee, FOMC.

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