Payroll employment is expected to increase by 175,000 in July, with private payrolls accounting for about 165,000 of those gains and the service sector, in particular, dominating growth. There are signs that the manufacturing sector is finally bottoming, but we will likely have to wait until August for a rebound in employment. The drawdown in inventories appears to have overshot on the downside, while new orders picked up in July. Construction sector hiring should be expanding in response to increased highway funding from the federal government, added to a pickup in remodeling activity and a shortage of move-in quality homes for first-time buyers. Overall, July payrolls are likely to be significantly stronger than the 147,000-average monthly pace during the second quarter.
The unemployment rate is expected to hold at 4.9%, which is above the low for the year but for the right reason. Participation in the labor force is expected to remain elevated in July as more workers reenter the labor force after an extended hiatus. The rise in the participation rate of 25 to 34 year-old women has been particularly pronounced since December. That likely reflects a pickup in demand for entry-level college graduates. Separately, a sharp increase in hiring in the day care sector (below) also suggests some broader healing in the labor market. Earlier in the expansion, a dearth of well paid jobs coupled with surging prices at the gas pump forced many working parents to stay home.