Jobless Rate Stays Steady in July, but More Workers Hit the Bricks

Those looking for a disappointing employment report weren't let down this morning.

Job losses continued in July, the Labor Department said, though they were concentrated in the manufacturing sector. In a bit of a surprise, the unemployment rate remained steady at 4.5%. Wage growth was strong again in July, which has continued to offset some of the weakening effects of rising layoffs.

Overall, nonfarm payrolls dropped by 42,000 in July, following the loss of 93,000 jobs in June. The June numbers were revised upward. The manufacturing sector shed 49,000 jobs, led by a loss of 45,000 in the electrical equipment and industrial machinery sector, which includes high-technology industries. That sector accounts for 40% of the total job losses in manufacturing during the last 12 months.

Economists polled by Reuters were looking for a decline of 50,000 jobs last month. The losses in manufacturing were buffered by a gain of 31,000 jobs in the government sector, due to large seasonal adjustments in education jobs. Without that though, it's clear that the market is going nowhere. Construction jobs were basically flat, adding just 1,000 jobs for the month. The service sector gained 5,000 jobs after a revised 33,000 gain in June.

"Not only is manufacturing in trouble, but no place else is picking up the slack," said Joel Naroff, president of Naroff Economic Advisors. "The Fed's got to look at this and say, 'This is not good,' because nobody's going anywhere."

At this point, the smart money is on an additional quarter-point decrease in the fed funds rate come Aug. 21, the next time the Federal Open Market Committee meets to consider changes in monetary policy. However, further evidence of a sagging economy could motivate the committee to cut rates by a half-percentage point from the current 3.75% rate.

Meanwhile, wages rose four cents, or 0.3%, to $14.35 an hour from $14.31 an hour. That's a 4.4% year-over-year rate, which (next to June's revised figure of 4.5%) is the fastest rate of wage growth since April 1998. Strength in wage growth has been one reason why consumers have continued to spend, albeit at a slowed pace from last year.

There is concern that those costs will continue to hurt corporate profits without enough of a surge in demand to help overall earnings. If that's the case, companies will continue to lay off workers, and that could spell further trouble for the economy. What could potentially offset these gains is if labor costs have peaked. That's a possibility, considering the recent slackening in the labor market.

The weekly workweek was unchanged at 34.2 hours.

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