Preview: Due August 7 - U.S. July Employment (Non-Farm Payrolls) - Stronger than June, but with a rise in unemployment
We expect July’s non-farm payroll to rise by 120k overall and by 110k in the private sector, a significant improvement from June’s respective gains of 57k and 49k but largely explained by a recovery in leisure and hospitality. We expect unemployment to rise to 4.3% from 4.2%, reversing a June decline, and an in line with trend 0.3% rise in average hourly earnings.
June’s outcome was a significant slowing from the three preceding months but this was explained largely by a 61k decline in leisure and hospitality, particularly surprising to those who had expected the World Cup to lift the sector. Tough seasonal adjustments may provide some explanation. We expect a modest rebound in July, by 25k. We expect private payrolls excluding leisure and hospitality to rise by 85k, down from 110k in June.
Initial claims saw a particularly low outcome in the survey week for July’s non-farm payroll and the 4-week average suggests significant upside risk to payrolls. However continued claims, while seeing some improvement from June, are not giving such a positive signal. Weekly ADP data in the week to July 11, the week before the payroll was surveyed, looks consistent with a payroll outcome similar to June’s. July’s consumer confidence report showed a dip in labor market perceptions.
We expect a 5k increase in goods, with manufacturing and construction both up by 5k and other goods down by 5k, and a rise of 105k in private services. Retail in addition to leisure and hospitality may pick up from a June dip but elsewhere we see some loss of momentum. We expect a third straight modest rise in government, led by local government. Government is often volatile in July due to the summer closing of schools though any surprise could be in either direction and would probably be reversed in September when schools reopen.
Unemployment fell in June as the household survey showed a 720k plunge in the labor force outweighing a 507k decline in employment. Both these series are likely to correct higher in July, we expect by 500k and 300k respectively, lifting unemployment to 4.3% from 4.2%. We expect a bounce in participation to 61.7% from June’s 61.5%, which followed three straight months at 61.8%.
We expect a third straight 0.3% rise in average hourly earnings, 0.29% before rounding, which would be slower than June’s but stronger than May’s. We expect a second straight yr/yr gain of 3.5%, which is consistent with trend being marginally below 0.3% per month.
We lean to a decline in the workweek to 34.2 hours after three straight months at 34.3, which would see aggregate hours worked correcting lower after three straight gains through Q2. Unusually hot weather is a modest downside risk to the workweek, which also may reduce upside risks to payrolls.
