Five things we learned from the surprisingly strong July jobs report

The second straight month of surprisingly strong job growth shows the labor market has regained its health after a springtime stumble, and economists welcomed the news after recent signs of weakness in the broader U.S. economy.

Private- and public-sector employers added 255,000 net new jobs in July and wages showed solid gains, the Labor Department said Friday.

The unemployment rate held steady at 4.9%, near an eight-year low, as the labor force expanded by about 407,000 people in an indication that Americans see improved job prospects.

“This confirms that, on the jobs side, the economy is robust,” said Patrick O’Keefe, economic research director at accounting and consulting firm CohnReznick.

A healthy job market has implications for economic growth, a Federal Reserve interest rate hike and the presidential campaign.

The stock market liked the news, with the Dow Jones industrial average rising about 165 points in mid-day trading.

Here are five things we learned from the July report.

May’s dismal report was an anomaly

Last month’s job growth was much stronger than expected coming off an upwardly revised 292,000 figure in June. That was the best monthly gain since 2014.

Economists had thought that was a one-time surge to make up for a severe hiring slowdown in May, when the economy added just 24,000 net new jobs. That figure was revised up Friday from 11,000, but still was the weakest month of job growth in more than five years.

Part of the reason for the poor figures was a strike by about 35,000 Verizon workers, who were counted as unemployed. The strike ended in late May.

“The strong employment momentum of the past two months suggests that the May slump was a fluke,” said Nariman Behravesh, chief economist at IHS Markit, a business research and analysis firm.

Experts often caution not to read too much into a single monthly report, so it took July’s data to indicate which month was the anomaly.

Even with May’s slowdown, job growth has averaged 190,000 over the last three months. That compares favorably to the 206,000 average for the 12 months ended July 31 and signaled the labor market is growing solidly.

The improved job market was a big help to workers on the lowest end last month. The unemployment rate for people at least 25 years old with less than a high school diploma dropped sharply to 6.3% in June, the lowest since 2006.

Pay is picking up

The recovery from the Great Recession has been marked by sluggish wage growth. There were signs in Friday’s report that was changing.

Average hourly earnings jumped 8 cents to $25.69 in July, much better than the two-cent rise the previous month.

For the year ended July 31, wages have increased 2.6%, well above the low inflation rate. That matches the best annual rate in seven years.

The wage growth figures were “a very strong and long awaited improvement” and “indicate that the tide is turning when it comes to worker compensation,” said economist Douglas Holtz-Eakin, president of the conservative-leaning American Action Forum think tank.

Employers are facing pressure to raise wages to attract and retain workers, economists said.

Two slowing sectors had limited effect on jobs market

The healthy labor market is at odds with the broader economy, which grew at an anemic 1.2% annual rate from April through June.

The figure came on the heels of two quarters in which the economy grew at less than a 1% annual rate, raising alarms about the strength of the recovery as it turned seven years old last month.

“Most sectors of the economy are growing but there are a few industries that continue to face significant headwinds,” said Ryan Wang, U.S. economist at HSBC, the large London-based bank.

Manufacturers have been hurt by the slowing global economy, which has reduced demand for exports, and by the strong dollar, which has increased the costs of those U.S. goods abroad.

On top of that, the mining industry has been devastated by falling oil prices.

Both of those industries are capital-intensive and their struggles helped fuel an $8.1-billion decline in business inventories in the second-quarter. It was the first such decline since 2011.

But their effect on the labor market is limited.

The manufacturing sector had 12.3 million employees last month and the the mining industry had 632,000. The total non-farm workforce was 144 million.

Manufacturing payrolls grew by 9,000 last month, down from a 15,000 increase in June. Mining companies shed 6,000 net jobs in July.

The biggest job gains last month were by business and professional services companies, which increased their payrolls by 70,000, up from 53,000 in June. The construction industry added 14,000 net jobs in July after shedding 3,000 the previous month.

Despite the troubles in manufacturing and mining, analysts expect economic growth to improve to about 2.5% in the second half of the year.

A Fed rate hike could be back on the table for September

After last week’s poor report on second-quarter economic growth, most analysts predicted the Fed would hold its benchmark short-term interest rate steady at least though the fall.

But that was assuming that July job gains would be about 185,000.

The additional 70,000 net new jobs could change the Fed’s calculus, particularly if second-quarter economic growth is revised up in the coming weeks as the Commerce Department evaluates more data.

Investors on Friday indicated there was a greater chance of an increase in the federal funds rate.

The probability of a small hike in September increased to 18% from 12% after the jobs report was released, according to the CME Group futures exchange.

Although the strong June and July jobs reports “raised the probability of a Fed rate hike in September,” Behravesh said, he expected the Fed to wait until December “when it can feel confident that the recent strength is sustained.”

The probability the Fed waits until then is about 40%, according to the CME Group measure.

O’Keefe, a former Labor Department official, predicted the Fed would wait.

“I doubt that the Fed is going to do anything with the federal funds rate between now and the election,” he said. “They are too wise to want to become a subject of conversation in the current electoral season.

There’s more economic fodder for the presidential campaign

Stephen Miller, senior policy advisor to Republican presidential nominee Donald Trump, last week called the 1.2% second quarter economic growth rate “catastrophic” and linked Democratic nominee Hillary Clinton to the “shockingly weak recovery.”

The recent strong job growth will make it tougher for Trump to deliver that message, said Mark Hamrick, Washington bureau chief of financial information website Bankrate.com.

“There’s no doubt too many Americans haven’t enjoyed the fruits of the recovery,” he said. “But by the broadest measures, the U.S. economy is in pretty good shape right now and that would seem to favor incumbents — and Hillary Clinton is seen as an incumbent.”

Jason Furman, chairman of the White House Council of Economic Advisers, touted the job growth Friday, noting the U.S. has added 15 million jobs since 2010 and that wage growth has picked up.

But the Trump campaign was not deterred.

“We are in the middle of the single worst ‘recovery’ since the Great Depression,” Miller said in reaction to the jobs report, ticking off several negative economic statistics.

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UPDATES:

11:55 a.m.: This article has been updated with reaction and additional analysis.

6:05 a.m.: This article has been updated with staff reporting and analysis.

This article was originally published at 5:30 a.m.