Hilsenrath Analysis: July Job Numbers Keep Fed Rate Hike on Track

By Jon Hilsenrath 

        Friday's jobs numbers were in line with the Federal Reserve's narrative for how the economy is developing--solid job growth and diminished slack in labor markets but no sign of wage or inflation pressure. This keeps the central bank on track to raise short-term interest rates this year, possibly in September, as some officials have recently signaled.
        In speeches and official statements, Fed officials have described hiring as solid and have said the unemployment rate is evidence that slack in the labor market has declined and will eventually lead to an acceleration in wage and price gains.
        The employment report released Friday, which was in line with market expectations and with the trend of recent months, likely won't change those assessments.
        The gain of 215,000 jobs in July was close to average monthly payroll employment growth so far this year. Average hourly earnings of workers, up 2.1% from a year earlier, show no sign of wage acceleration.
        The jobless rate at 5.3% in July was where Fed officials forecast it will be by year-end and is down from 6.2% a year ago. A broader measure of unemployment, which includes discouraged workers and people working part-time jobs who want full-time jobs, fell further to 10.4% from 10.5% in June and is down nearly two percentage points from a year earlier.
        The jobless rate is important even though the number was unchanged from June. Fed decisions are driven in part by how the central bank's forecasts for the economy are evolving. In June, in their quarterly Summary of Economic Projections, officials projected the jobless rate would average 5.2% or 5.3% in the fourth quarter. The July jobs report keeps those forecasts intact. The fact that the rate held steady makes it easier to raise interest rates. Officials would be reluctant to raise interest rates if they thought unemployment might be higher at year-end.
        The Fed has been sending signals rates might go up in September. In an interview with The Wall Street Journal this past week, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said he would be inclined to raise short-term rates in September as long as he didn't see convincing new evidence that the economy was off track.
        St. Louis Fed President James Bullard said in a separate interview with the Journal this past week that the economy was in "good shape" for a September move.
        Meantime, the Fed said in its July policy statement it wanted to see "some" further progress in labor markets before raising rates. The jobs report Friday, by keeping to the trend the Fed describes as solid, clearly fell within the realm of some further progress.
        The bigger question officials will need to debate in September is whether such improvement is enough to give them confidence that inflation will eventually begin rising toward the central bank's 2% objective. Inflation, by the Fed's preferred measure, has run below that target for 38 straight months.
        Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
        (END) Dow Jones Newswires

        August 07, 2015 10:00 ET (14:00 GMT)

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