U.S. economy adds fewer jobs than expected in July

Myles Udland
Markets Reporter

The U.S. labor market was a mixed picture in July, but overall remains in good shape.

In July, the U.S. economy added 157,000 jobs while the unemployment rate fell to 3.9%.

Expectations were for the economy to add 193,000 jobs with the unemployment rate falling to 3.9%.

Wage gains were in-line with expectations, rising 0.3% over last month and 2.7% over last year. The monthly increase in wages was an improvement from June’s 0.1% increase.

Following this report stock futures remained lower, but had little reaction to the jobs report itself. Earlier on Friday morning futures dropped after headlines said China would impose tariffs on $60 billion of U.S. goods.

The most notable job gains in July came from the manufacturing sector, which added 37,000 jobs during July. This sector has now created 192,000 new jobs this year.

Job gains were less than expected in July, though earlier months’ job gains were revised higher and the unemployment rate fell to 3.9%. (Source: BLS)

Neil Dutta, an economist at Renaissance Macro, said following Friday’s report that, “The important point is that there is no sign of overheating but that aggregate wages and salaries (jobs x hours x earnings) are growing at a brisk pace.”

Friday’s report showed that the closure of Toys ‘R’ Us had an outsized impact on the employment picture in July as the economy lost 31,800 jobs from the sporting goods, hobby, book, and music stores sub-industry, which in total only employs around 600,000 people.

Another highlight from Friday’s report was a decline in the underemployment rate — a measure that captures both those out of work and people who want full-time work but are working part-time — which dropped to a post-crisis low of 7.5% in July, down from 7.8% in June.

Friday’s report also included a revision to prior jobs reports, which now suggests the economy added 248,000 jobs in June, up from an initial report showing 213,000 new jobs were added to the economy. May’s jobs report was also revised higher to show 268,000 jobs were created that month, and over the last three months job gains have now averaged 224,000.

Workers unfurl an American flag at the FlagSource facility in Batavia, Illinois, U.S., on Tuesday, June 27, 2017. (Photo: Jim Young/Bloomberg via Getty Images)

In July, the labor force participation rate held steady at 62.9%. An increase in the labor force participation rate in June pushed up the unemployment rate to 4% from the post-crisis low of 3.8% hit back in May.

“Non-farm payrolls increased by a more modest 157,000 in July but, with the gain in the preceding two months revised up by a cumulative 60,000, the labor market still appears to be in good health,” said Paul Ashworth, chief U.S. economist at Capital Economics.

“This [report] won’t derail the Fed’s plans to hike interest rates again next month.”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland