US Job Growth Slows in July Amid Rising Unemployment
The pace of non-farm job growth in the US fell below expectations in July, with unemployment rates increasing and indications of potential challenges in the labor market.
Employment added only 73,000 jobs for the month, which is an improvement over the 14,000 jobs added in June, but it still missed the Dow Jones estimate of 100,000. Moreover, the numbers for June and May were significantly revised down, showing a combined total of 258,000 fewer jobs than previously reported.
At the same time, the unemployment rate climbed to 4.2%, aligning with forecasts. Specifically, June’s job total was downgraded from 147,000, while May’s figures dropped sharply from 125,000 to just 19,000.
Following this news, stock market futures took a hit, but Treasury yields also saw a notable decline.
“This is the GameChanger employment report,” noted Heather Long, the chief economist at Navy Federal Credit Union. “The labor market is rapidly deteriorating.”
A weak jobs report accompanied by significant revisions could motivate the Federal Reserve to consider lowering interest rates at their upcoming meeting in September. In the wake of this report, futures traders raised the likelihood of an interest rate cut from 40% to 63%.
“Today’s report reinforces indications of a slow but ongoing cooling trend. The labor market isn’t in crisis just yet, but hiring momentum is easing, and pressure is starting to build,” an analyst observed.
Unfortunately, July’s job growth showed little strength overall, primarily driven by gains in the healthcare sector, which added 55,000 jobs as it continues to rebound post-Covid. Additionally, social assistance contributed 18,000 jobs.
In contrast, federal employment has seen ongoing declines, with a loss of 12,000 positions since its peak in January. This reduction coincides with efficiency efforts initiated by leaders like Elon Musk.
Regarding wages, average hourly earnings rose by 0.3%, meeting expectations, while annual wage growth reached 3.9%, slightly above projections.
However, the household survey, which figures into the unemployment rate, revealed worse outcomes than the establishment survey, with a reduction of 260,000 workers. This led to a decrease in the participation rate to 62.2%, marking the lowest level since November 2022.
Broader measures of unemployment, including those not actively seeking work and individuals holding part-time jobs for economic reasons, increased to 7.9%, the highest since March.
The report touches on companies preparing for ongoing trade negotiations and rising tariffs. Previously, President Donald Trump has urged the Fed to lower interest rates. Despite his criticisms, the Fed maintained its borrowing levels in a recent vote.
On Friday, Trump expressed his frustrations on social media regarding Fed Chairman Jerome Powell, insisting on significant rate cuts and labeling the Fed’s decisions a “disaster.”
While there are apprehensions about the future of the labor market, key economic indicators are still positive. For instance, GDP grew at an annual rate of 3% in the second quarter, a figure that surpasses expectations. However, this mainly reflects adjustments following significant import accumulation ahead of the tariffs introduced on April 2nd, with underlying demand appearing weak despite some uptick in consumer spending since the first quarter.
