U.S. Payroll Growth is Surprisingly Strong

The job market remained on firm footing during July. Nonfarm payroll employment grew 255,000 (1.7% y/y) following upwardly revised gains of 292,000 and 24,000 during the prior two months. A 180,000 increase had been expected in the Action Economics Forecast Survey. The three-month average change in payrolls of 190,000 was the strongest since March, but was below the peak 259,000 three-month change averaged last July. The unemployment rate remained at 4.9%. A 4.8% rate was expected. The unemployment rate including marginally attached workers and those working part-time for economic reasons ticked up to 9.7%. Average hourly earnings gained 0.3% (2.6% y/y) versus expectations for a 0.2% rise.

Payroll employment improvement was broad-based. It included a 14,000 rise (3.3% y/y) in construction employment which followed three straight months of decline. Factory sector employment increased 9,000 (-0.3% y/y), though that was below June's 15,000 increase. Mining sector employment declined 6,100 (-16.8% y/y), moderate versus the 17,600 jobs lost in February.

In the private service-producing sector, payrolls increased 201,000 (2.2% y/y) following a 254,000 increase. Three-month average growth of 166,000 was improved versus the prior two months, but well below December's cycle high of 238,000. Professional & business  services employment grew 70,000 (2.6% y/y), the firmest gain in nine months. The increase included a 17,000 rise (0.9% y/y) in temporary help jobs. Employment in leisure & hospitality grew 45,000 (2.7% y/y) after a similarly strong 52,000 June rise. The two gains together were at the high end of increases averaged during the recovery. Education & health services employment improved 36,000 (2.8% y/y), the weakest gain in six months. Trade, transportation & utilities employment improved 29,000 (1.4% y/y), though retail jobs rose just 14,700 (1.9% y/y), well off the 66,500 pace six months earlier. Employment in financial activities improved 18,000 (2.0% y/y), one of the stronger gains this cycle. Information sector employment remained unchanged (1.1% y/y). Government sector payrolls increased 28,000 (0.7% y/y) as local government jobs rose 30,000 (0.8% y/y). State government jobs increased 5,000 (0.5% y/y) and federal government employment rose 3,000 (1.2% y/y). 

The length of the average workweek improved to 34.5 hours, up from 34.4 hours in each of the prior five months. It remained down, however, from the 34.6 hour peak for this cycle. Hours worked in the goods producing sector was steady at 40.3 hours, but down from the 2014 peak of 40.6 hours. Private service sector hours were steady at 33.3. Within that total, however, there were sharp divergences. Hours worked in financial activities returned to the cycle peak of 37.7, while hours in the information sector of 36.1 were down from the 2014 high of 36.9 hours. Hours worked in the leisure & hospitality sector eased to 26.1 hours.

The 0.3% gain in average hourly earnings was the strongest rise in three months. It raised y/y growth to 2.6% which equaled the strongest increase for this cycle, and was up from 1.9% during all of 2012. Earnings in service industries improved 0.3% (2.6% y/y), paced by a 1.0% increase (3.0% y/y) amongst financial activities. Leisure & hospitality earnings rose 0.4%, but y/y growth jumped to 4.0%, the largest increase since 4.6% early in 2008. This strength was offset by a 0.1% rise (2.5% y/y) in trade, transportation & utilities which included a 0.3% decline (+2.1% y/y) in retail trade.

The household survey revealed a stable 4.9% unemployment rate which reflected a 420,000 rise (1.8% y/y) in employment and a 407,000 (1.4% y/y) increase in the labor force. The labor force participation rate improved to 62.8% versus the cycle low of 62.4% in September, but remained well below the 67.1% averaged from 1997 to 2000.

The teenage unemployment rate eased to 15.6%, its low for the economic recovery. For those aged 25 and over, the rate was stable at 4.0%; for individuals aged 35-44, it fell to 3.5%.

By educational attainment, the unemployment rate for those with less than a high school diploma fell sharply to a cycle low of 6.3%. High school graduates with no college encountered a stable 5.0% unemployment rate, while those with some college but no degree were 4.3% unemployed. College graduates met with the lowest unemployment rate at 2.5%.

The labor market data are contained in Haver's USECON database. Detailed figures are in the EMPL and LABOR databases. The expectations figure is in the AS1REPNA database.

Consumer credit outstanding increased $12.3 billion during June following a $17.9 billion May gain, revised from $18.6 billion. The 4.1% m/m increase was the smallest since July 2012. A $15.0 billion increase had been expected in the Action Economics Forecast Survey. During the last ten years, there has been a 46% correlation between the y/y growth in consumer credit and y/y growth in personal consumption expenditures.

Nonrevolving credit borrowing grew $4.6 billion (5.9% y/y) after a little-revised $16.1 billion gain. It was the smallest dollar increase since December as trend growth has been softening. The 2.1% rise, however, was the smallest since a decline in August 2011. Federal government loans (36% of the total) increased 11.0% y/y. Finance company balances (24% of the total) eased 1.8% y/y. Borrowing at depository institutions (25% of the total) improved 5.7% y/y, and borrowing at credit unions (11% of the total) jumped 11.4% y/y. Nonprofit & educational institution loans (2% of the total) declined 10.2% y/y, and nonfinancial business loans (1% of the total) remained unchanged y/y.

Revolving consumer credit increased $7.7 billion after a $1.8 billion rise, revised from $2.4 billion. It was the largest increase in three months and left y/y growth strong at 5.4%. Balances at depository institutions (84% of the total) grew 8.2% y/y. Finance company holdings (6% of the total) fell 10.2% y/y, while borrowing from credit unions (5% of the total) advanced 7.8% y/y. Nonfinancial business credit (2% of the total) fell 11.7% y/y, and securitized credit card balances (3% of the total) declined 16.2% y/y.

Student loans during Q2 increased 6.6% y/y while motor vehicle loans rose 7.0% y/y.

These Federal Reserve Board figures are break-adjusted and calculated by Haver Analytics. There is a break in the credit outstanding data from November 2010 to December 2010 due to the Fed's benchmarking process. Benchmark estimates are based on the Census of Finance Companies (CFC) and the Survey of Finance Companies (SFC) conducted in 2010 and 2011, respectively.

The consumer credit data are available in Haver's USECON database. The Action Economics figures are contained in the AS1REPNA database.