U.S. job growth likely picked up in July; unemployment rate forecast unchanged at 4.2%

U.S. job growth likely picked up in July, offering reassurance that the labor market remained resilient and allowing the Federal Reserve to maintain its focus on inflation. The Labor Department's closely watched employment report on Friday is also expected to show the unemployment rate unchanged at 4.2% last month even as the labor force participation rate is anticipated to have rebounded after declining to more than a five-year low in June. Economists said though employment gains had slowed after a strong performance over spring, the labor market remained in a steady state, with employers neither eager to boost hiring nor to embark on mass layoffs. The labor market and overall economy have so far weathered the Iran war, now in its sixth month, with domestic demand growing at its fastest pace in more than three years in the second quarter. Nonfarm payrolls likely increased by 80,000 last month after rising by 57,000, a Reuters survey of economists showed. Estimates ranged from as low as 10,000 to as high as 140,000 jobs added. Though the consensus estimate is below the average 111,000 monthly payroll gains over the second quarter, it would still be well above the roughly 20,000-50,000 jobs per month that economists say are needed to keep up with growth in the working-age population. The so-called break-even rate has been slashed by a shrinking labor force amid President Donald Trump's immigration crackdown. Economists would be keeping an eye on revisions to the payroll counts for May and June, which they said could be a more important aspect of the July report. Some economists said recent data, including the Job Openings and Labor Turnover Survey, pointed to downward revisions. Healthcare was likely to lead the anticipated job growth in July. A rebound in leisure and hospitality payrolls was expected after a 61,000 drop, the largest since the COVID pandemic, which the government blamed on "weaker than usual seasonal hiring." Government data on metropolitan employment has not shown a surge in payrolls in cities that hosted the FIFA World Cup. Marginal payroll gains were expected in manufacturing, though an acceleration could be in the cards after an Institute for Supply Management survey this week showed a measure of factory employment rebounded in July, hitting a four-year high. Annual wage growth was seen holding steady at 3.5%. Economists said an increase in payrolls that was in line with expectations would keep a September interest rate on the table, especially if the unemployment rate fell to 4.1% as some anticipated. The U.S. central bank last week left its benchmark overnight interest rate in the 3.50%-3.75% range. Three members of the Fed's policy-setting committee dissented, preferring a quarter-percentage-point hike. Next week's inflation data could sharpen the debate on the near-term monetary policy outlook. The downside risks to the labor market that motivated last year's rate cuts have dissipated, said Shruti Mishra, an economist at Bank of America Securities. Combined with persistently sticky inflation, we think that strengthens the case for reversing those cuts. Economists believe the labor force bounced back in July after a sharp plunge drove the participation rate, or the proportion of working-age Americans who have a job or are looking for one, to 61.5% in June. It reflected a 0.6 percentage point drop in the prime-age group. There was no compelling reason for the decline, economists said. With hundreds of thousands of immigrants losing their protected status, labor supply could shrink. This could translate into further downside pressure on the unemployment rate, due to both a declining documented workforce and possibly increased "labor hoarding" by firms, a phenomenon last observed during the pandemic, said Britney Jackson, a U.S. economist at BNP Paribas Securities. Even as the labor market remains stable, people who lose their jobs are experiencing long bouts of unemployment. College graduates are also struggling to get a foot in. The average duration of unemployment is near four-year highs. We're seeing low unemployment and a stable labor market, but a difficult hiring environment for unemployed workers, said Ryan Nunn, director of research for the Budget Lab at Yale.

U.S. job growth likely picked up in July; unemployment rate forecast unchanged at 4.2%

July payrolls likely to improve modestly

Healthcare and leisure seen leading gains

Fed debate could sharpen after the jobs report

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