Job growth continues to decline as Fed eyes another rate hike

The economy added 187,000 jobs in July, marking a slowdown from last month, according to data from the Bureau of Labor Statistics (BLS). The gain was also less than the average monthly increase of 312,000 jobs over the last 12 months.

Job gains were partially driven by healthcare, social assistance, financial activities and wholesale trade, the BLS said. The unemployment rate in July stood at 3.5%, changing little from its 3.6% level in June. Overall, it has remained steady in the past few months. Unemployment has ranged from 3.4% to 3.7% since March 2022. In addition, average earnings increased by 14 cents, or 0.4%, to $33.74, the BLS said. 

But despite the slowdown in employment growth, the Federal Reserve may still continue to raise interest rates in the months ahead. 

"Job growth is weakening, and wage growth is holding steady, but both are still above the pace that would be consistent with the Federal Reserve’s inflation target," Joel Kan, Mortgage Bankers Association (MBA) vice president and deputy chief economist, said in a statement. 

Since 2022, the Federal Reserve has raised interest rates 11 times in an attempt to lower inflation down to a 2% target range. In recent months, inflation has shown signs of slowing down and economic growth has calmed some recession fears. But the state of the economy remains uncertain. 

"The incoming economic data continue to convey conflicting signals about the strength of the economy," Kan said. "Indicators of manufacturing and service sector health remain lackluster, measures of inflation have moved lower, while GDP growth in the second quarter was stronger than expected and consumer spending remains resilient."

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Will the Fed raise interest rates again?

The Fed expressed it could raise interest rates once more in 2023 in order to bring inflation down to its 2% target range. 

"We remain committed to bringing inflation back to our 2% goal and to keeping longer-term inflation expectations well anchored," Fed Chairman Jerome Powell said at a press conference in July. "Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions."

Inflation slowed to 3% in June year-over-year, according to the latest Consumer Price Index (CPI) released by the BLS. That signaled the smallest 12-month increase since the period ending March 2021, the BLS said. 

But some economists suggest the Fed would take a closer look at the data before declaring that inflation is within target of its goals. 

"Don't expect the Fed to stop raising rates," Morning Consult Chief Economist John Leer said in a July statement. "The Fed cares primarily about the trend in core PCE inflation, which has been persistently elevated for the past six months. One month of encouraging CPI data isn't enough for the Fed to make a dovish pivot, particularly as it seeks to maintain credibility with financial markets." 

Most recently, the Fed raised interest rates by 25 basis points in July. That move pushed the federal funds rate to a targeted range of 5.25% to 5.5%, its highest level in 22 years. The Fed holds its next meeting in September. 

"We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation as well as the balance of risks," Powell said. 

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Job growth could spur housing market 

Despite signs of slower-than-expected job growth in July, it could have a positive impact on housing demand.

"Economic data, including today’s job report figures, suggests that conditions are still favorable for households, which should provide a nice boost for housing demand," Realtor.com Chief Economist Danielle Hale said in a statement. "However, mortgage rates are climbing again, nearing previous 20-year highs and more than offsetting the benefit of any dip in home listing or selling prices."

Nonetheless, the Fed’s doubtful views of an imminent recession could have a positive impact on the housing environment, according to Redfin Economic Research Lead Chen Zhao.

"This is hopeful news for the housing market in a few ways," Zhao said in a blog post. "Avoiding a recession means Americans will hold onto their jobs, for the most part, and feel more confident about purchasing big-ticket items like a house. Steady progress on taming inflation means that while mortgage rates will probably stay elevated for at least a few months, they’re likely to start coming down before the end of the year. That should encourage some sellers and buyers to jump into the market."

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