July Jobs Report Forecasts Show Moderating Hiring Gains

The July jobs report is forecast to show a slowing in hiring, in line with the job market moderating but avoiding significant softening.

Economists predict that the US economy added 175,000 jobs in July, down from 206,000 in June, according to FactSet consensus estimates. One wildcard is Hurricane Beryl, which may have depressed hiring.

“I think we will have yet another report that can drop into the Goldilocks category—not too hot, not too cold,” says Jeffrey Roach, chief economist at LPL Financial. “We’ve seen a lot of data come in like that—inflation metrics, GDP numbers.” In the background, Roach believes there are signs of an emerging slowdown in hiring. “We’re starting to just see a little bit of rotation on the consumer side, a little softer demand for discretionary items, and that’s going to trickle through into the hiring component,” he says.

July Jobs Report Forecast Highlights

• Jobs report release date and time: Friday, Aug. 7, at 8:30 a.m. EDT
• Nonfarm payroll employment is forecast to rise 175,000 vs. a 206,000 increase in June, according to FactSet
• The unemployment rate is forecast to stay steady at 4.1%
• Hourly earnings are predicted to stay constant at 0.3% on a monthly basis

Job Openings Suggest Moderating Hiring

Economists say the June Job Openings and Labor Turnover Summary, released Tuesday, supports the idea that the market is gradually moderating. The report showed the number of job openings was unchanged at 8.2 million. Kevin Khang, senior international economist at Vanguard, finds this “encouraging.” Total hires were at 5.3 million and total separations were at 5.1 million, both seeing minimal change. Among those separations, 3.3 million quit and 1.5 million were laid off or discharged—also similar to the previous period.

“Two acyclical sectors—government and healthcare and social assistance—continue to drive overall employment growth,” Bank of America economists report wrote in a preview of the jobs report. “Indeed, these two sectors accounted for close to three-quarters of jobs added in June. We expect these sectors to remain major sources of job growth as employment levels are still catching up to pre-pandemic trends.” They forecast an increase in payrolls of 225,000.

Khang also estimates an increase of around 200,000, which he says is in line with “our view of where the labor market is, which is moderating but not showing too many signs of softness to cause concern.” He believes the major driver here is healthcare, with some contributions from leisure and hospitality, as well as professional business services.

Unemployment Rate Seen Holding Steady

The FactSet consensus forecasts the unemployment rate to remain at 4.1%, the same as the June results but higher than last July’s rate of 3.5%.

Khang forecasts unemployment at 3.8%-4.2%. “We think that a lot of that is driven by post-covid seasonality that’s somewhat new in the labor market,” he explains. With the wage increase in the services sector since covid, there has been a surge in labor force participation among young people aged 16-24, which impacts unemployment rates.

Goldman Sachs does not see reason for concern about the unemployment rate. The layoff rate is still historically low, which is important because “it means the economy is not experiencing the usual vicious circle in which job and income loss lead laid-off workers to reduce their spending, leading to further job loss,” write its analysts. They instead see the unemployment rate as the result of a higher labor supply, led by immigration, with the job market unable to keep up. “Job growth is far from weak, and with final demand still growing at a robust pace, it appears set to remain fairly solid,” they wrote. And “even if labor demand were to weaken too much,” the Federal Reserve has “room to cut and no reason to hesitate anymore if it needs to push back.” The Fed could quickly respond to a scenario in which labor demand declined, in contrast to a “fast-paced vicious circle of spiraling layoffs.”

Roach expects a slight uptick in unemployment on this week’s report, but it doesn’t make him nervous either, especially because “historically, the unemployment rate is still very very low … There’s really not a massive decline in hirings or spike in unemployment. The movements in the labor market have been fairly measured.” He thinks the increase in unemployment and loosening of the labor market actually “supports the narrative that the Fed can start easing up on rates.”

One unknown is how much Hurricane Beryl will affect job market trends. “We expect that Hurricane Beryl held down employment in July, and the workweek, creating upside risk to average hourly earnings,” wrote economists at UBS. They forecast an increase of 150,000 in hiring for the month, with a slight decline in the work week to 34.2 hours. Average hourly earnings could see a 0.3% increase.