The U.S. economy is steadily adding jobs — just not at a consistently strong pace.
July’s modest gain of 162,000 jobs was the smallest since March. And most of the job growth came in lower-paying industries or part-time work.
The unemployment rate fell from 7.6 percent to a 4½-year low of 7.4 percent, still well above the 5 percent to 6 percent typical of a healthy economy. The rate fell because more Americans said they were working, though some people stopped looking for a job and were no longer counted as unemployed.
July represented the 34th straight month of job creation, but the latest pace of employment gains is still not on track to absorb the backlog of unemployed workers any time soon. At the average rate of job growth seen so far this year, it would take more than seven years to close the so-called jobs gap left by the recession, according to the Hamilton Project at the Brookings Institution.
Friday’s report from the Labor Department is bound to be a key factor in the Federal Reserve’s decision on whether to slow its bond purchases in September, as many economists have predicted it will do. Some think July’s weaker hiring could make the Fed hold off on any pullback in its bond buying, which has helped keep long-term borrowing costs down.
The report said employers added a combined 26,000 fewer jobs in May and June than the government had previously estimated. Americans also worked fewer hours in July, and their average pay dipped.
For the year, job growth has remained steady. The economy has added an average of 200,000 jobs a month since January, though the pace has slowed in the past three months to 175,000.
Nariman Behravesh, chief economist at IHS Global Insight, called the employment report “slightly negative,” in part because job growth for May and June was revised down.
Scott Anderson, chief economist at Bank of the West, said it showed “a mixed labor market picture of continued improvement but at a still frustratingly slow pace.”
Some economists are hopeful that the pace of hiring will pick up once the latest across-the-board budget cuts approved by Congress have worked their way through the system at the end of the fiscal year on Sept. 30. But battles in Washington over the debt ceiling and further austerity measures mean that the drag from a shrinking government could continue into next year and beyond.
“Whether there’s less fiscal drag, more fiscal drag, or a train wreck, we still really don’t know,” said Joshua Shapiro, chief United States economist at MFR.
The reaction from investors was muted. Stock averages closed with modest gains. The yield on the 10-year Treasury note fell to 2.6 percent from 2.71 percent — a sign that investors think the economy remains sluggish and might need continued help from the Fed.
Beth Ann Bovino, senior economist at Standard & Poor’s, said she thinks the Fed will delay any slowdown in its $85 billion a month in bond purchases.
“September seems very unlikely now,” she says. “I’m wondering if December is still in the cards.”
Still, it’s possible that the lower unemployment rate, along with the hiring gains over the past year, could convince the Fed that the job market is strengthening consistently. Job growth has topped 140,000 each month for nearly a year, and unemployment has steadily declined.
“While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement,” said Paul Ashworth, chief U.S. economist at Capital Economics. “On that score, the unemployment rate has fallen from 8.1 percent last August to 7.4 percent this July, which is a significant improvement.”
The government uses a survey of mostly large businesses and government agencies to determine how many jobs are added or lost each month. That’s the survey that produced the gain of 162,000 jobs for July.
It uses a separate survey of households to calculate the unemployment rate. That survey captures hiring by companies of all sizes, including small businesses, new companies, farm workers and the self-employed.
The household survey found that 227,000 more people said they were employed last month. And 37,000 people stopped looking for work and were no longer counted as unemployed.
The number of self-employed jumped 241,000, or 2.6 percent, to 9.7 million — the most in eight months. This group includes freelance workers, construction contractors, lawyers and other professionals with solo practices and farmers and ranchers.
Combined, those factors explain why the unemployment rate declined from 7.6 percent to 7.4 percent.
More than half of July’s job gain in the survey of big companies and government agencies came from lower-paying industries, extending a trend that’s limiting Americans’ incomes and possibly slowing consumer spending. Retailers, for example, added nearly 47,000 jobs — the biggest gain for any industry last month. Restaurants and bars added 38,400.
One Atlanta-based retailer, Cellairis, which sells mobile phone accessories, says it hired about 75 employees last month to meet growing demand. The company has 650 U.S. outlets, most of them mall kiosks. It plans to add 45 walk-in stores this year.
“People are willing to spend more now to protect and personalize their devices,” said CEO Taki Skouras.
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