Private sector employers added 185,000 jobs last month, according to payroll giant ADP, indicating some slackening in job growth, particularly in the manufacturing and energy industries.
Small businesses added 59,000 jobs last month, about half the number added in June, including 26,000 in businesses with between one and 19 employees, and 34,000 in companies with between 20 and 49 employees.
Midsize companies with between 50 and 499 employees gained 62,000 jobs in July, down from 78,000 in June.
Large businesses added 64,000 jobs in July, up from 34,000 in June. The July additions included 17,000 in companies with between 500 and 999 employees, down from 28,000 jobs in June, and 47,000 in businesses with 1,000 employees or more, nearly eight times the 8,000 added in June.
“July employment growth was slower than June, but is still in line with what we have seen since the first of the year,” said ADP president and CEO Carlos Rodriguez in a statement. “Notably, large businesses with more than 500 employees had their strongest job gains since last December and were almost double the June number.”
Service-providing employment rose by 178,000 jobs in July, down from 216,000 in June. Professional and business services, which include accounting, tax and other services, contributed 42,000 jobs in July, down from 61,000 in June. The combined trade, transportation and utilities sector grew by 25,000 jobs in July, just over half of the 47,000 added in June. The 10,000 new jobs added in financial activities in July represented a drop from 16,000 in June, however. Franchise businesses added 33,300 franchise jobs in July.
Goods-producing employment rose by 8,000 jobs in July, after adding 13,000 in June. The construction industry added 15,000 jobs in July, but that was down from 17,000 in June. Meanwhile, manufacturing added 2,000 jobs in July, after gaining 9,000 in June.
Mark Zandi, chief economist for Moody’s Analytics, which compiles the monthly
“The weakness relative to expectations is largely concentrated in the goods-producing sector, more specifically in manufacturing, where we saw only a very small gain of 2,000 jobs, and another decline in the energy-related resource and mining sector, which is not too surprising,” he said.
Zandi attributed the job losses to the surge in the value of the dollar over the past year, cutbacks in the oil industry, and weak global growth, particularly in Asia. However, vehicle sales are booming and adding jobs in the manufacturing sector.
“The vehicle side of manufacturing is doing fine, but the non-vehicle side is getting hammered by global conditions,” said Zandi.
Even though oil prices have been climbing slowly in recent months, the jobs have not recovered. Last year, the energy sector was adding 10,000 to 15,000 jobs per month, but this year it has been losing 10,000 to 15,000 jobs per month.
The combination of factors has depressed job growth this month. Whereas last year, the private sector had been adding around 250,000 jobs per month, this year the additions have been about 200,000 jobs.
Zandi anticipates job growth will probably end up around 500,000 to 600,000 less in 2015 compared to 2014.
However, some industries are doing better this year, particularly the construction sector, which has been adding jobs, particularly in constructing apartment buildings, as more millennials form families. The pace of apartment construction has recently been as high as in the mid-1980s. Zandi is also seeing slower, but solid pickup in commercial construction, which has been relatively depressed until recently.
That includes construction of office buildings, industrial space, retail malls and health care facilities. The only “missing link,” according to Zandi, has been single-family housing, which has picked up a bit since the housing bust, but remains low by historical standards. But he expects to see many more single-family homes built over the next two to three years.
“That means a lot more jobs, certainly in the construction trades,” said Zandi. He believes that will have a spillover effect in other industries, including manufacturing, financial services, landscaping and cable hookup.
Zandi expects to see strong job growth for the rest of this year and into next year at a pace of around 200,000 jobs per month. “At the current pace of job growth, that’s double the pace we need to absorb the growth of the working age population, assuming a stable labor force participation rate, which is roughly what we’ve gotten over the last 12 to 18 months,” he said. “That means the labor market is getting tighter.”
He believes there is still a fair amount of slack in the labor market, but the current pace of job growth suggests the economy will be back to what is considered “full employment” by this time next year.
“That’s the path we’ve been on for quite some time, at least over the last 18 to 24 months,” said Zandi. “I think it’s going to take a lot to derail that train. When you add all this up, I think the trajectory strongly argues for the Federal Reserve to begin raising short-term interest rates.”
He acknowledged there has been considerable debate over whether the Federal Reserve board will raise interest rates at its meeting in September or will wait until December. Zandi believes the key number that will determine that decision will be whether the U.S. Bureau of Labor Statistics report that comes out Friday shows job growth of more than 200,000 per month.
“If we get 200,000-plus on Friday for the month of July, and for the month of August when we get the next read, I think that will be enough ammunition for policymakers to decide at that point to begin raising rates in September,” he said.
