U.S. Job Growth Likely Rebounds in July as Unemployment Holds at 4.2%

U.S. job growth likely accelerated in July, with employers expected to add 80,000 jobs while the unemployment rate remainswhile the US unemployment rate remains at 4.2%, signaling a resilient labor market as the Federal Reserve continues to focus on inflation.

Economists expect the Labor Department’s monthly employment report, due Friday, to show modest improvement in hiring after payroll gains slowed to 57,000 in June. The labor force participation rate is also forecast to recover after falling to a more than five-year low last month.

A Reuters survey projects nonfarm payrolls increased by 80,000 jobs in July, with the US unemployment rate expected to remain at 4.2%. While below the average monthly gain of 111,000 during the second quarter, the expected increase remains above the level economists say is needed to keep pace with growth in the working-age population.

“It’s still a relatively steady-as-she-goes situation, not a particularly strong or weak employment market,” Brian Bethune, an economics professor at Boston College, said. “I certainly don’t see a breakout on the upside or any compelling reason on the downside.”

Hiring Remains Stable Despite Economic Uncertainty

Economists say employers continue to hire cautiously while avoiding widespread layoffs, helping keep the US unemployment rate stable despite slower employment growth.

The economy has remained resilient even as the conflict involving Iran enters its sixth month. Domestic demand expanded at its fastest pace in more than three years during the second quarter, helping support business activity and hiring.

Analysts will closely watch revisions to payroll data for May and June. Some economists believe recent labor market indicators, including the Job Openings and Labor Turnover Survey, suggest earlier employment figures could be revised downward.

“The difference in labor market flows in the JOLTS data has been softer than payroll job growth for a few months,” Veronica Clark, an economist at Citigroup, said. She also noted unusual differences between production worker employment and total private payroll growth in June, which could affect assessments of the US unemployment rate.

Fed Watches Jobs and Inflation Outlook

Healthcare is expected to lead job gains in July, while leisure and hospitality employment may recover after posting its largest monthly decline since the COVID-19 pandemic. Manufacturing payrolls could also improve after factory employment indicators strengthened in July, supporting a stable US unemployment rate outlook.

Average annual wage growth is expected to remain unchanged at 3.5%.

Economists say a jobs report that matches expectations would keep the possibility of a Federal Reserve interest rate increase in September on the table, especially if the US unemployment rate declines to 4.1%.

The Federal Reserve last week left its benchmark interest rate unchanged at 3.50% to 3.75%. Three members of the central bank’s policymaking committee favored raising rates by a quarter percentage point.

“The downside risks to the labor market that motivated last year’s rate cuts have dissipated,” Shruti Mishra, an economist at Bank of America Securities, said. “Combined with persistently sticky inflation, we think that strengthens the case for reversing those cuts.”

Economists also expect labor force participation to improve after June’s unexpected decline to 61.5%. However, they warn that reduced immigration could limit labor supply in the coming months.

Although unemployment remains low, many job seekers continue to face lengthy job searches, and recent college graduates are finding it difficult to secure employment. The average duration of unemployment remains near a four-year high.

“We’re seeing low unemployment and a stable labor market, but a difficult hiring environment for unemployed workers,” Ryan Nunn, director of research for the Budget Lab at Yale, said.

Visit more of our news! Future Education Magazine