The US economy showed a little more spunk in July, as more people found jobs than in May and June. But the midsummer improvement was relatively modest, not a full-fledged jobs festival.
The US economy added 163,000 jobs, which was 100,000 more than the prior month, the Bureau of Labor Statistics reported Friday. The unemployment rate ticked up to 8.3 percent from 8.2 percent in June.
For the first seven months of the year, the economy has averaged a gain of 150,000 jobs. This is just enough to find jobs for new people entering the labor market but not enough to give a boost to the millions of people who have been out of work for an extended period of time.
"This kind of job growth would be totally fine if we were at full employment,” says Heidi Shierholz, an economist at the Economic Policy Institute, a think tank in Washington. “But it is not what we need given the jobs deficit we have.”
The jobs numbers are a flash point in the fall election campaign. The Republicans immediately pointed to the 8.3 percent unemployment report as an indication that the Obama economic policies are not working. The Democrats said the numbers indicate that the economy is starting to shake off its second-quarter malaise. They blamed Republicans for obstructing legislation that might aid the economy.
The July numbers might also have some implications for the Federal Reserve, which met this week and decided not to make any changes to monetary policy. However, the Fed indicated it was watching the economic data and might initiate a new round of stimulus if the economy were to slide.
“These numbers will push them back on their heels again,” says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.
Although the better numbers were relatively modest, Wall Street traders were buoyed. As of 11:40 a.m., the Dow Jones Industrial Average was up 244 points to 13122, or up almost 2 percent on the day.
“The rally started in Europe, where investors interpreted comments from Mario Draghi, the head of the European Central Bank, in a positive way,” says Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Ore. “Then, the jobs numbers helped to sustain it. Wall Street had lower expectations for the numbers."
The gain on Wall Street, if it is sustained, would erase loses over the prior three days of the week. However, Mr. Dickson warns that historically August is the poorest-performing month of the year.
Back on Main Street, the top drivers for the job gains in July were the auto sector and some renewed hiring in the restaurant industry.
In the case of autos, which added 12,800 jobs for the month – out of a gain of 29,000 for manufacturing – much of the improvement in jobs was the result of the auto companies delaying their normal summer layoffs that take place when they close assembly lines to retool them for the coming new model year. A main reason for the delay: better-than-expected demand from businesses, which had delayed buying new cars and trucks.
“About one-third of all cars and two-thirds of all trucks are bought by business,” explains Dan Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation in Arlington, Va. “What we are seeing is that the replacement cycle is due – it has gotten to the point where it is too expensive to repair the vehicles; they are not worth fixing any more.”
From the consumer standpoint, relatively low-cost auto loans are available, he notes. “Interest rates for auto loans are very low,” he says.
The improvement in hiring in the restaurant and bar business, which added 29,000 jobs in July, might also be a good omen for the economy, says Mr. Dickson. “If people are eating out more, that’s a good sign,” he says.
Dickson says he and his wife were eating out recently at a Macaroni Grill, a national chain. “The manager told me that business was up about 6 percent year over year,” he says. “But [customers] are spending less per visit – ordering fewer desserts.”
In Atlanta, the Olmstead Restaurant, a new fine-dining Southern establishment opening this fall, is now looking to fill between 20 and 40 jobs, ranging from cooks to front-of-house managers.
"Our take on the market is that it is fairly strong here in Atlanta," says Hunter Jefferson, one of the principal owners. He says they “feel very optimistic about the economy right now.”
July also brought an increase of 49,000 jobs for professional and business services. Within that group, temp services added 14,000 jobs. Sometimes an improvement in temp hiring is a prelude to businesses getting ready to hire more people full-time.
However, employment of government officials continued to decline, as it has all year. According to the BLS, there was a decline of 9,000 government jobs in July.
Mr. Brown says the overall jobs numbers, while better, need to be sustained.
“It’s only one month,” he cautions. “We need to see the trend continue.”