US employment growth was less than expected in July and revised lower for the previous two months, indicating that the labor market is cooling after almost 18 months of interest rate increases.
According to data provided by the Bureau of Labor Statistics, the economy gained 187,000 new nonfarm jobs, compared to predictions of 200,000.
This follows a downwardly revised 185,000 in June and a 281,000 number in May. The last three months might be seen as an optimistic indicator that the Federal Reserve is having success combating inflation.
However, the labor market as a whole remained strong, with the unemployment rate falling to 3.5%.
Hourly wages increased by 4.4 percent year on year, significantly beyond the levels considered consistent with the Fed’s 2% inflation objective. Wages increased by 0.4% month over month, above consensus estimates of 0.3%.
“There are signs of softening in the headline numbers, so that is progress… but wage growth remains concerning, and the Fed will not be complacent about that,” said Andrew Patterson, senior economist at Vanguard.
The Fed and investors have been keenly monitoring the labor market’s health, as wage and job growth are important drivers of inflation.
Optimism has increased in recent weeks that the central bank is on pace to contain inflation without plunging the economy into a deep recession. Consumer price inflation decreased more than predicted in June, while the favored gauge of the central bank, the personal consumption expenditure index, fell to its lowest level since March 2021.
However, the Fed has warned that continued labor market strength may make it more difficult to bring inflation all the way down to its objective.
