Months out from the midterm elections, Democrats on the campaign trail are now armed with this talking point: No matter how you look at it, the economy is steadily gaining strength.
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“It is a sign of how far the US economy has come in recent months that the 209,000 increase in non-farm payroll employment in July will probably be viewed as a disappointment in the markets,” said Paul Ashworth, chief U.S. economist at Capital Economics.
The July jobs report also capped a solid week of economic news. Following a dismal first quarter when the U.S. economy contracted at a rate of 2.1 percent, the government announced on Wednesday that gross domestic product grew at an annual rate of 4 percent in the second quarter of this year — far surpassing expectations. Meanwhile, the Federal Reserve took one more step this week toward winding down its bond buying stimulus program as it noted that economic activity had “rebounded” this spring.
The uptick in the unemployment rate can in part be explained by the fact that 329,000 workers entered the labor force last month. One weak spot in the jobs report that continues to be of concern is the average hourly earnings, which was virtually unchanged last month and has only risen by 2 percent over the last year.
The pace of the economic recovery and health of the labor market are poised to take on increasing political importance in the coming months as the midterm elections approach. Lawmakers are fleeing Washington for the August recess and many are turning their focus to reelection campaigns back at home.
For much of President Barack Obama’s first term, Republicans could point to a historically high unemployment rate as proof that Democratic policies were doing little to help get the economy back on track. But with the jobless rate steadily declining over the last year and economists predicting job growth to average around 200,000 over the rest of the year, the message that the recovery is going nowhere has begun to lose some of its potency.
Republicans are sticking with the message that a declining unemployment rate fails to show that too many discouraged Americans are still looking for work.
“We also can’t forget that the unemployment rate doesn’t tell the whole picture,” said Reince Priebus, chairman of the Republican National Committee. “It doesn’t account for the millions of Americans who have dropped out of the labor force because they’re exhausted from looking for jobs that don’t exist.”
The White House said Friday’s report demonstrated an “encouraging trend in the labor market,” and congressional Democrats criticized their GOP colleagues for standing in the way of efforts to create jobs.
“When we return in September, Senate Democrats stand ready to pass legislation creating jobs, cutting taxes for businesses and middle class families, renewing the Export-Import Bank, and extending the Internet Tax Freedom Act,” said Senate Majority Leader Harry Reid (D-Nev.). “It is my hope that Republicans will put politics aside and join us in acting on critical legislation that ensures a fair shot for all Americans.”
Each month’s unemployment numbers also provide one more data point for the Federal Reserve as it mulls when to raise short-term interest rates, which have remained at historic lows since the 2008 financial crisis. The issue is of great interest to investors and analysts, who believe that the central bank could become eager to act sooner if the labor market improves at a more robust pace than previously expected. Some investors have reservations about the potentially negative impact of the Fed raising rates too fast.
Sectors that added jobs in July included professional and business services, which grew by 47,000; manufacturing which rose by 28,000; and retail trade employment, which gained 27,000.
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