Average hourly earnings rose 4.4% annually.
August 4, 2023
Payroll employment rose by 187,000 jobs in July, close to the downwardly revised 185,000 gains of June. May was also revised down, which in combination with the acceleration in real GDP growth we saw in the second quarter, suggests that productivity growth increased even more rapidly than initial estimates for the second quarter. That is helping workers to retain more of their wage gains without further stoking inflation. That is a win for the Federal Reserve.
The public sector added 15,000 new jobs, a sharp slowdown from the pace of June. Watch for a bounce back in those gains as schools reopen in August. The government at all levels has been scrambling to catch up on employment and compete with the private sector since the economy fully reopened.
Over half of the private sector gains were driven by a 100,000 surge in hiring in private education and health services. The strongest increases were in health services. Everything from hospitals to nursing homes is finally filling positions that have long gone vacant. The Job Opening and Labor Turnover Survey for June, which was released earlier the week, showed strong gains in postings for healthcare.
The remainder of the gains were spread across financial services, wholesale trade (including warehousing for online retailers, which saw strong promotions in July). Leisure and hospitality continued to slow, adding only 17,000 jobs. The majority of those gains were in food services. Much travel this summer has shifted abroad.
Construction added 19,000 jobs but manufacturing contracted by 2,000. The deployment of infrastructure funds and subsidies for chip plants helped buoy the gains in construction. Manufacturing lost the most ground in in nondurable goods. Food processors lost jobs as spending at the grocery store continued a downward trend. Spending on food (including restaurants) peaked on an inflation-adjusted basis in August 2021. Motor vehicles and parts also contracted slightly more than usual during the July shutdowns for repairs and retooling.
The largest losses during the month were in temporary help, which dropped by 22,000. That is largest drop in that category since December 2022. Hiring of administrative and support jobs fell the most. Hiring of accountants fell for the first time since December; it was down just 400 people and remains more constrained by the number of new graduates than the demand for accountants, which has soared since the economy reopened.
Average hourly earnings rose 0.4% in July, slightly more than expected. That translates to a 4.4% increase from a year ago, the same as we saw in June. Wages in the construction sector drove gains. They have reaccelerated rapidly with efforts by builders to keep building and selling homes with mortgage buydowns, subsidies for chip plants and the ramp up in infrastructure funds at the state and local levels. Electric vehicles have lost some of their luster.
Separately, the unemployment rate fell back to 3.5%, with participation in the labor market holding at 62.6% in July. The ranks of those out on vacation and unable to work surged to 6.2 million, but still one million below the level of 2019. Workers have spread out their vacations more over the year since reopening. They are starting to settle into more seasonal trends. Travel abroad picked up this summer relative to travel within the U.S. TSA throughput hit record highs during the week of the Fourth of July. Travel abroad is considered an import.
Those out sick and unable to work edged back above one million with a rise in COVID outbreaks. That is down by a third from a year ago but warrants watching. Staffing shortages have eased for frontline jobs in part because of a drop in the number of workers whose jobs need to be covered due to illness. Quit rates have also come off the red-hot pace of early 2022. That is mitigating burnout and enabling workers to gain experience; it's also boosting productivity growth.
The number of workers who were out due to labor disputes rose to 31,000 in July. That reflects the direct and spillover effects of the writers' and hotel workers' strikes in Los Angeles. That is the highest since December 2003 when grocery store workers in California went on strike. Those figures do not yet reflect the actors' strike, which could idle as many as 470,000 workers directly in the August payroll report. The survey for that report will be taken next week.
The silver lining for the Fed is that those gains are now accompanied by productivity gains.
Payroll gains have slowed considerably in 2023 from the frenzied pace of 2022 and 2021 but remain extremely strong. This would have been considered a blowout month in the 2010s. Wage gains have moderated but remain elevated. The silver lining for the Fed is that those gains are now accompanied by productivity gains. That means that they represent less of a threat in terms of inflation. Short-term rates are likely at their peak for this cycle.