Job Growth Falls Well Below Expectations as Unemployment Rises

The Bureau of Labor Statistics (BLS) reported 209,000 jobs were added in July, far below expectations and a steep drop from the prior month, which saw 298,000 total nonfarm jobs were added in the United States. In July, the unemployment rate rose to 6.2% from 6.1%.

Professional and business services—so-called white collar office jobs—saw the largest growth, with 47,000 new jobs in July. Manufacturing came in second (28,000 added jobs), followed closely by retail (27,000) and construction (22,000).

The Bureau of Labor Statistics (BLS) reported 209,000 jobs were added in July, far below expectations and a steep drop from the prior month, which saw 298,000 total nonfarm jobs were added in the United States. In July, the unemployment rate rose to 6.2% from 6.1%.

Professional and business services—so-called white collar office jobs—saw the largest growth, with 47,000 new jobs in July. Manufacturing came in second (28,000 added jobs), followed closely by retail (27,000) and construction (22,000).

While the total unemployment rate rose, unemployment for Americans 25 years and older with a Bachelor’s degree fell 0.2% to 3.1%, nearly half of high school graduates, whose unemployment rate rose to 6.1%.

Economists had expected an increase of 233,000 in non-farm payrolls in July, with estimates ranging between 200,000 and 280,000. Earlier in the week, private payrolls firm ADP said 218,000 non-farm private jobs grew by 218,000, with most jobs coming from small businesses (84,000 new jobs added) and medium-sized businesses (92,000). The vast majority of those positions were service-sector jobs.

The BLS jobs report comes shortly after the BLS announced that wages are beginning to rise at a slightly better rate. In June, wages and salaries rose by 1.8% over the year, according to the BLS, with private industry workers seeing stronger wage growth—at 1.9%—than state and local government workers, whose incomes rose 1.3%.

Yellen Sees “Underutilization”

While economists have expected a steady increase in payroll growth throughout 2014, which has largely come to fruition, both experts and the Federal Reserve have remained concerned that the labor participation rate remains low.

Some commentators dismiss this as a demographic reality; as baby boomers age and retire, the proportion of workers to total population in the U.S. will decline. But in her most recent statement in the Federal Open Market Committee in June, Fed Reserve Chairman Janet Yellen said that she believes the labor market is far from healthy. “A range of labor market indicators suggests that there remains significant underutilization of labor resources,” said the Committee in their statement.

At the same time, the FOMC also said that the labor market is improving, and the country is getting closer to maximum employment at a consistent rate, causing the Fed to continue to taper its quantitive easing program. At the same time, the FOMC has said it will keep its current historically low target for the federal funds rate, currently at 0-0.25%, for “a considerable time after the asset purchase program ends.”

Low Demand, Low Inflation

While employment in the U.S. has remained far below the Federal Reserve’s target for several years, prices have seen lackluster growth and wages have grown even less, causing Americans’ real purchasing power to decline.

Inflation remains far below Central Banks’ targets in Europe and the United States, even as both regions see a strengthening economic recovery. Earlier this week, Spain announced prices fell 0.9% in July, the fastest price decline Spain has seen since 2009. Across the EU, inflation fell to 0.4%, stirring fears that the continent might be facing a liquidity trap.

Like the Federal Reserve, Europe’s European Central Bank (ECB) is targeting an inflation level of 2%. The ECB cut interest rates in June, and many analysts expect a more robust European quantitative easing program to spur aggregate demand throughout the region.