The U.S. economy delivered pretty much what was expected last month in terms of hiring, giving the Federal Reserve one more piece of evidence that conditions are strong enough to support an increase in the interest rate.
The pace of employment growth was steady, as the economy added 215,000 jobs in July, Friday’s Labor Department report said. Though not as robust as the gains recorded in May and June, the report came in within 10,000 jobs of what forecasters had predicted in an economy that employs nearly 150 million people.
The unemployment rate was unchanged at 5.3 percent. If the current pace of job growth can be maintained, economists expect the jobless rate to sink below the crucial 5 percent level by late 2015 or early 2016.
In the financial markets, stocks fell. It was the seventh straight day of declines for the Dow Jones industrial average. That’s the longest losing streak for the index since July 2011, when investors were worried that the U.S. would slip back into recession.
The Dow fell 46.37, or 0.27 percent, to 17,373.38. The Standard & Poor’s 500 index fell 5.99, or 0.29 percent, to 2,077.57. The Nasdaq composite fell 12.90, or 0.26 percent, to 5,043.54.
With the job market generally moving in the right direction, the Fed is likely to stick to its plans to raise short-term interest rates soon. Fed officials haven’t given a definitive signal, but they have indicated a rate increase is possible at the next Fed meeting in September or at their last meeting of the year in December.
While pockets of weakness remain — historically low levels of participation in the workforce and very sluggish wage gains for most workers — private economists said Friday that a September move by the central bank was a real possibility, especially if job creation in August turns out to be as good as or better than it was in July.
“Solid enough to keep the September hike alive,” said Ian Shepherdson of Pantheon Macroeconomics in a note to clients shortly after the release of the data.
Although the initial increase will be small, short-term interest rates have been near zero since late 2008. The Fed dropped rates to historically low levels during the depths of the financial crisis in a bid to stimulate growth and stave off panic.
The Fed controls short-term interest rates, rather than the longer-term benchmarks such as 10-year bond yields that help determine rates on mortgages, so ordinary Americans won’t feel much of an impact at first.
In fact, consumers could actually benefit from an increase in what’s known as the federal funds target rate as it filters through the financial markets and causes yields on checking accounts and money market deposits to rise, according to Scott Anderson, chief economist at Bank of the West in San Francisco.
But the slow reversal of years of easy credit by the central bank has markets on edge, with traders and investors having grown used to very cheap borrowing costs.
“It comes down to a shift in policy, and this will be a watershed event,” Anderson said. “Investors are looking beyond the first rate hike to where rates will be two, three or four years down the road.”
Despite the overall healthy tone of Friday’s report, areas of weakness remain.
▪ Wage growth has been sluggish. Average hourly earnings rose 0.2 percent in July, about what was expected and better than comparable figures in June, when wages were flat.
Over the last 12 months, wages have risen at an annual rate of 2.1 percent, not much more than the already low underlying rate of inflation. The situation helps explain why many workers remain frustrated with what has been a fitful recovery.
▪ The proportion of Americans in the workforce also did not bounce back in July after declining in recent months. At 62.6 percent, it remains at levels not seen since the late 1970s.
The Labor Department’s broadest measure of unemployment, which includes people working in part-time positions because they can’t find full-time jobs, declined 0.1 percentage point to 10.4 percent.
The mining and logging sector lost 4,000 jobs, a sign of the pain in the oil patch as energy companies cut drilling and other exploration efforts. The public sector added 5,000 jobs, while private employers increased payrolls by 210,000.
The strongest areas for hiring included health care, retailing, and professional and business services. Manufacturers added 15,000 jobs in July, the biggest monthly increase for the sector since late 2014.
The Labor Department also revised upward the number of jobs added in May and June by a total of 14,000, bringing the average monthly gain over the past three months to 235,000.
The average workweek also grew slightly, another sign the economy is maintaining some momentum after a slow start to the year.