(Reuters) - U.S. job growth slowed more than expected in July, likely due to companies’ struggles to find qualified workers, and the unemployment rate declined, pointing to tightening labor market conditions.

Nonfarm payrolls increased by 157,0000 jobs last month, the Labor Department said on Friday. The unemployment rate fell one-tenth of a percentage point to 3.9 percent in July, even as more people entered the labor force in a sign of confidence in their job prospects.

Economists polled by Reuters had forecast nonfarm payrolls increasing by 190,000 jobs last month and the unemployment rate falling to 3.9 percent.

STORY: TABLE:

KEY POINTS:

- U.S. July labor force participation rate was 62.9 percent vs June’s 62.9 percent

- U.S. July average hourly earnings for all private workers rose 0.3 percent, as expected, more than June’s downwardly revised 0.1 percent rise

- U.S. July private sector jobs rose 170,000, less than consensus for a 189,000 rise and June’s upwardly revised 234,000 (previous +202,000)

- U.S. July government jobs fell 13,000 vs June rise of 14,000 (previous +11,000)

- U.S. July factory jobs up 37,000 vs June’s up 33,000

- U.S. July goods-producing jobs rose 52,000, construction up 19,000, private service-providing jobs up 118,000, retail up 7,100

COMMENTS:

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The trade war fears are probably going to overshadow the jobs report.”

“The employment rate was down. That was to do more with the fact that participation rates remains low and markets may have been skewed by seasonal factors and some companies holding back on hiring due to the trade war fears.”

“The jobs report doesn’t change the strength of the job market, it’s just disappointing this time but it could be due to seasonal factors and some companies holding back on hiring.”

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON

“I interpret the report as positive overall. Certainly the headline number missed, but you saw a tick down in the unemployment rate, you saw the revisions moved higher if you look at the average number of gains over last three months, when I take into consideration the revisions, it’s 224,000.

“Ten years into the economic expansion, these are very solid numbers. The market will like the fact that the average hourly earnings stayed at 2.7 percent, so again we’re not seeing a real acceleration in wage inflation and that’s likely to keep the Fed at bay, which I think the market will appreciate.

“What’s likely to happen is that the Fed will continue on its suggested pace, but as 2018 turns into 2019 the Fed will begin to signal to the market that they’re getting near the end of this interest rate tightening cycle, and that should be music to the market’s ears.”

SHAWN SNYDER, HEAD OF INVESTMENT STRATEGY, CITI PERSONAL WEALTH MANAGEMENT, NEW YORK

“It’s weaker than expected but I don’t think it’s a horrible number, you can see the markets are a little bit disappointed.

“I would be a little bit more worried if you didn’t see the positive revisions to the previous months. That makes you a little more comfortable. The payrolls number is coincident with the economy, not really a leading indicator, so what I look at is the initial jobless claims each Thursday which are a leading indicator and those are really low. So, the labor market is still good.

“Our official forecast is for one (rate) hike, but I think they’re definitely on track for September. I don’t think this makes it less likely you get a second one but if you saw this continue, and there is a bit of risk in August payrolls which are usually weak. So, if this happens again… Maybe you start to think twice about it.

JIM VOGEL, INTEREST RATE STRATEGIST, FTN FINANCIAL, MEMPHIS, TENNESSEE

“It was a bit of a mixed bag, but overall the latest in a series of strong numbers. The market never gets every detail right, but it really anticipated the overall picture quite well and is now content to move on to all the big events next week.

“The most important thing about the Treasury market this morning is that it has really looked past some of the Asian concerns last night and consternation with regards to Italy…The fact we’ve sort of contained global issues to their regional sponsors and countries and there hasn’t been contagion has allowed Treasuries to move back up to a more normal state.”

STEVEN VIOLIN, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER, F.L.PUTNAM INVESTMENT MANAGEMENT COMPANY, WELLESLEY, MASSACHUSETTS

“They are actually interesting numbers this month. Revisions over the past couple of months were really strong, reflective of just the incredible strength of the labor market at this stage of the economic cycle. This month obviously the big headline number is a little bit disappointing, but underlying that the wage gains have been really steady. No move in the labor force participation as we saw last month which is perhaps indicative that we are approaching full employment and additional advances are going to slow a little bit as we reach full important and that the Fed, is really going to continue to normalize monetary policy. That adds a little fuel to the fire there. This just gives them more cover, even though the headline number is a little weak the wage gains are coming through, you are not seeing the same increases in the labor force participation we saw last month and certainly the revisions are eye-popping as well.

“It’s hard to tell, the counter-balancing, that is still the question as to whether some of the trade disputes are starting to creep into corporate planning and maybe hiring processes. So the shift from very strong revisions to a little soft this month does create a bit of concern as to whether we are starting to see economic decisions being altered by the administration’s trade policies.

“It is definitely mixed and that reflects a very strong economic outlook but there is risk here and because of that soft headline number you see those risks being reflected and some concern there in the marketplace. “

OMAIR SHARIF, SENIOR U.S. ECONOMIST, SOCIETE GENERALE, NEW YORK

“The story is pretty much the same. Job growth is still very strong. It’s still a disappointment on wages still with the unemployment rate this low. We are still fluctuating between 2.5 percent and 2.8 percent in year-over-year wage growth. The labor story hasn’t changed very much. Everything else looks pretty solid. We are just waiting for wages to accelerate. We can’t seem to budge out of this range. This doesn’t change anything for the Fed. This keeps the Fed on track for September. For most people, a December hike is a done deal. I am a little less comfortable with that right now because the Fed is probably looking at more just the labor market to determine further hikes.”

HEIDI LEARNER, CHIEF ECONOMIST, SAVILLS STUDLEY, SAVILLS PLC, NEW YORK

“Nothing in today’s report changes the Fed’s calculus for a move in September. With wages and salaries up 2.7 percent, which is consistent with the 2.9 percent annual increase we saw for private sector workers in the June employment cost index report released earlier this week, a third rate hike in September is all but certain.

“These were solid figures all around as a softer figure for July, just 157,000 job gains, was offset by revisions for May and June, which increased nonfarm payroll employment by 59,000. With a modest decline in the unemployment rate to 3.9 percent and an unchanged labor force participation rate, this is still a strong report.”

MARKET REACTION:

STOCKS: S&P e-mini futures ESv1 little changed but give up fractional gains to stand 0.02 percent easier

BONDS: Treasury yields slipped; 2-year notes US2YT=RR were at 2.6655 percent and 10-year US10YT=RR at 2.9711 percent

FOREX: The dollar index .DXY extended modest loss and was off 0.13 percent