Employment Growth Slows

Employment growth in July was slower than expected with only 92k new jobs added (consensus 127k). In addition the increase in June was revised down by 6k to 126k. Other than the 90k number in February, this was the slowest growth since 2004, and suggests that the labor market may be cooling. The household survey showed employment declining by 30k.

Government hiring declined for the first time since January 2006, falling by 28k jobs in July. Service hiring growth, which has been the main creator of new jobs this year, slowed to +104k in July, half the pace of just two months ago. Construction payrolls fell by 12k. Retail job growth was also flat at -1k.

Manufacturing payrolls only declined by 2k, the smallest decline since January, and the manufacturing workweek held steady at a relatively high 41.3 hours. Overtime also remained constant at 4.2 hours.

The unemployment rate inched up in July to 4.647%, the top end of the range for the past 11 months. The low for this cycle was 4.4% in March, which was also the lowest unemployment rate since 2001. The unemployment rate has held below 5% since December 2005. Fewer people entering the labor force has helped keep the unemployment rate from rising as job creation has slowed.

Average hourly earnings grew 6 cents, or +.3% MoM, and held steady at 3.9% YoY (consensus +3.8% YoY). Over the past 12 months, average hourly earnings have risen 4%, on average, versus 3% over the past five years. Average weekly earnings, which take into account the changing number of hours worked, rose slightly to $589.81 for production workers.

Hours worked unexpectedly fell to 33.8 (33.9 consensus). Other than one blip down to 33.7 hours in February, the workweek has varied between 33.8 or 33.9 hours for almost two years.

Interest rates fell following the employment report, but are slowly working back to unchanged versus yesterday's 5pm close.