In July, the US economy added fewer jobs than expected, but solid wage gains and a decline in the unemployment rate to 3.5% pointed to tight labor market conditions. The slower hiring might be due to companies struggling to find workers, and it could also be influenced by the Federal Reserve’s interest rate hikes. Economists believe the Fed could achieve a “soft landing” for the economy, but it depends on inflation trends after prices slowed in June.
Despite the mixed report, some sectors experienced job growth. Healthcare added 63,000 jobs, financial activities saw a rise of 19,000, and the construction sector added 19,000 jobs. However, hiring in leisure and hospitality slowed, possibly due to increased living costs.
The unemployment rate dropped to 3.5%, the lowest in over 50 years. Wages continued to rise at a brisk pace, with average hourly earnings increasing by 0.4%, maintaining a year-on-year wage growth of 4.4%.
While annual wage growth is still above the Fed’s 2% target, economists do not see last month’s readings as sufficient to warrant another rate hike this year. Financial markets expect the Fed to keep rates steady for the rest of the year.
Overall, the labor market remains tight, wages are rising faster than inflation, and productivity has rebounded, curbing growth in labor costs. Despite challenges, the economy appears to be on a path towards a sustainable and strong labor market.
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