Implications:  This is why you should never read too much into one employment report.  A couple of months ago, the government said payroll growth was the slowest in several years.  Pessimists went into overdrive, the Fed postponed rate hikes, and some analysts started warning of an impending recession.  But, since then payrolls are up 547,000 in only two months.  Payrolls rose 255,000 in July, easily beating consensus expectations and coming in higher than any forecast from any economics group.  Meanwhile, civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 420,000.  In the past year, payrolls are up 204,000 per month while civilian employment is up 221,000 per month.  The unemployment rate held steady at 4.9% in July, but that was due to a welcome 407,000 increase in the labor force.  In the past year, the jobless rate has declined from 5.3% even as the labor force has grown 2.2 million.  The labor force participation rate ticked up to 62.8% in July and so far this year has been consistently at or above the 62.6% average for 2015.  This signals that cyclical improvement in the labor market is temporarily outweighing headwinds from retiring Boomers, easily available disability benefits, and overly generous student aid.  Perhaps the best news in today's report was on wages and hours.  Average hourly earnings, which exclude fringe benefits and irregular bonuses/commissions, grew 0.3% in July and are up 2.6% versus a year ago.  Hours worked rose 0.5% in July and are up 1.6% in the past year.  Combined, total cash earnings are up 4.3% from last year, giving workers plenty of purchasing power.  One negative detail in the report was that the median duration of unemployment rose to 11.6 weeks.  Duration has remained stubbornly higher than usual for this stage of the economic expansion, confirming that some workers who have been out of work are having trouble finding jobs.  In other recent news on the labor market, new claims for jobless benefits increased 3,000 last week to 269,000.  The four-week moving average is 260,000.  Continuing claims declined 6,000 to 2.14 million.  It's still very early, but these figures suggest another solid month for job growth in August.  Although the market's odds on a rate hike this year jumped after today's report, those odds still favor the next rate hike coming in 2017.  We still think the Fed raises rates this year and that the odds of two rate hikes in 2016 are higher than the odds of none at all.   

Click here for PDF version