The Employment Situation in July – March to September

The Employment Situation report for July offered more evidence of steady progress in the labor market recovery, the accumulated improvement that may convince the Federal Reserve that it’s time to start raising interest rates.

The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 215 thousand in July. Revisions to May and June added 14 thousand additional jobs. Monthly gains to payroll employment have been over 200 thousand in 15 of the last 17 months, averaging 249 thousand over the period. The unemployment rate was unchanged at 5.3% with modest gains in both the labor force and employed persons.

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The press release following the Federal Reserve’s July policy meeting last week noted that the Fed was looking for “some further improvement” in the labor market before beginning the process of raising interest rates and “normalizing” monetary policy (Fed). A string of 16 out of 18 months over 200 thousand additional jobs going into the September meeting may give the Fed the confidence it seeks to pull the trigger in September.

With steady payroll gains and the unemployment rate at 5.3%, the shadow labor force of part-time workers for economic reasons (would work more if offered) and the marginally attached to the labor force (would work at all if offered) are the last bastions of labor market underutilization. These pools of willing workers are down from their peaks but remain elevated. More progress is expected tapping these resources, but significant declines by the end of the year, the Fed’s stated preference for raising interest rates, is unlikely.

Given the accumulated progress to date and the most likely near term improvements, today’s employment report brings us one step closer on the path to a September liftoff.

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