The Labor Department reported Friday that the economy gained 209,000 jobs in July, while the unemployment rate ticked higher to 6.2%. Economists had expected a gain of 230,000 jobs in the month and an unemployment rate of 6.1%. The disappointing jobs number adds further uncertainty to financial markets, which are preparing for an end to the Fed’s bond buying program.
Average hourly earnings also fell below expectations. Economists had expected wages to increase by 0.2% in July, with year-over-year growth of 2.2%. The Labor Department reported, however, that wages grew just one cent in the month with a yearly gain of just 2%.
Wage growth has been stagnant for most of the economic recovery. This has put pressure on consumer spending, which contributes around two-thirds of economic activity. Without real wage growth, the outlook for steady real growth in the economy remains weak.
July’s gain of 209,000 jobs is consistent with an economy that remains in neutral. The labor force grew by over 300,000 adults in the month. July’s jobs gains, then, was below the level necessary to keep up with population growth.
The report, however, was probably just positive enough for the Fed to continue its “tapering” of bond purchases in the market. Earlier this week, the Fed announced it was going to reduce its monthly asset purchases by another $10 billion, bringing its total down to around $25 billion a month.
As the Fed money printing comes to an end, concerns are rising that the economy isn’t strong enough to withstand the loss of monetary stimulus. Since the financial crisis, the Fed has pumped more than $3 trillion into the financial markets. GDP growth to date, however, has been less than the stimulus.
The Fed withdrawal from the financial markets will reveal the underlying real economy. The glimpse isn’t likely to be pretty.