Economic Preview: The economy has problems, but the labor market isn’t one of them: U.S. likely added 171,000 jobs in July

The economy might be more fragile now than it was last year, but it’s hard to tell by looking at the muscular U.S. labor market. The U.S. likely added 171,000 new jobs in July, returning the unemployment rate to a 50-year low of 3.6%. Read More...

A waitress carries a tray with lobster and crab. The service side of the economy is still adding plenty of new jobs. Hiring is expected to increase enough in July to reduce the unemployment rate to a 50-year low of 3.6%.

The U.S. economy might be more fragile now than it was last year, but it’s hard to tell by looking at the muscular labor market.

Read: Fed cuts interest rates over trade worries

The U.S. likely added 171,000 new jobs in July, returning the unemployment rate to a 50-year low of 3.6%, according to economists polled by MarketWatch. Here’s what to watch in the monthly employment report due Friday morning.

Payback time?

Faster hiring in construction, manufacturing and government helped spur a surprisingly strong 224,000 increase in new jobs in June. Just don’t expect a repeat.

American manufacturers are growing at the slowest pace in three years and construction has tapered off after hitting a postrecession peak last year. The government, for its part, has not been adding many jobs.

If shortfalls in these three segments of the economy materialize as expected it’s likely to limit employment growth in July.

Low rate of layoffs

Unemployment has hovered below 4% since January and it’s expected to fall a tick to 3.6% in July. The last time the jobless rate was that low was in 1969.

Read: Jobless claims climb 8,000 to 215,000 at end of July, but layoffs still extremely low

Even if the unemployment rate rises, however, it’s unlikely to be a negative sign. The jobless rate often edges during the later stages of an economic expansion because more people are drawn back into the labor force in search of work. Initially they are counted as unemployed.

Flatting wage growth

Increases in worker pay accelerated in 2016 through the end of last year, but wage gains appear to have leveled off despite an exceedingly tight labor market in which skilled employees are hard to find.

Read: Worker pay and benefits grow more slowly in another sign of ebbing inflation

The growth in hourly pay is forecast to rise 0.2% in July, bringing the increase over the past year to 3.2%. Not bad after years of wages rising around 2%, but below a recent 3.4% peak and well below the 4% gains that often prevail in the later stages of an economic expansion.

On the bright side, modest wage growth means low inflation and the continuation of very low interest rates.

The latest trends

The economy has slowed since last year and it’s showing up in the employment figures. The U.S. has added an average of 172,000 new jobs a month in 2019, down from 223,000 in 2018.

That’s still a lot, though. Economists figure the U.S. only needs to add around 80,000 jobs a month to keep the unemployment rate falling given how slowly the population is growing.

Investors aren’t too worried either so far about slightly slower economic growth. The Dow Jones Industrial Average DJIA, -0.86% and S&P 500 SPX, -0.85% both hit record highs in the past week in anticipation of the Federal Reserve decision to cut interest rates this year.