A complete of 114,000 new jobs have been created in July, considerably fewer than anticipated; the unemployment price rose to 4.Three p.c
U.S. job growth slowed much more than expected in July and the unemployment rate rose slightly, fueling concerns about a broader economic slowdown, the U.S. Labor Department reported Friday.
Nonfarm payrolls grew by just 114,000 during the month, down from the downwardly revised 179,000 in June and below the Dow Jones estimate of 185,000. The unemployment rate rose slightly to 4.3%, the highest since October 2021.
Average hourly wages, a closely watched inflation barometer, rose 0.2 percent month-on-month and 3.6 percent year-on-year, both below forecasts of 0.3 percent and 3.7 percent, respectively.
Stock market futures added to further losses following the report, while Treasury yields collapsed.
The labor market has been a pillar of economic strength but has shown some signs of trouble recently, and July's employment increase was well below the 12-month average of 215,000.
“Temperatures may be hot across the country, but there is no summer heat for the labor market,” said Becky Frankiewicz, president of employment services firm ManpowerGroup. “The general slowdown has caused us to lose most of our gains from the first quarter of the year.”
Across all sectors, the healthcare sector was once again the leader in job creation, with 55,000 new jobs. Other notable increases were recorded in construction (25,000), public services (17,000) and transport and warehousing (14,000). The leisure and hospitality sector, another of the largest increases in recent years, also created 23,000 new jobs.
The information services sector recorded a loss of 20,000.
While the survey of establishments, used to calculate payrolls, was discouraging, the household survey was even more discouraging, recording growth of only 67,000, while the number of unemployed rose by 352,000. The participation rate as a share of the working-age population rose slightly to 62.7%.
The report is another example of the mixed signals that have been given recently about the economy, which have made financial markets nervous about the US Federal Reserve's response.
Although markets welcomed indications from the Fed on Wednesday that a rate cut could come as early as September, those concerns quickly turned to anxiety when economic data on Thursday showed an unexpected rise in jobless claims and a further weakening in the manufacturing sector.
That sparked the worst sell-off of the year on Wall Street and renewed fears that the Fed is waiting too long to cut interest rates. A slowdown in wage growth could give policymakers more confidence that inflation is heading back toward their 2% target.
The rise in the unemployment rate brings into play the so-called Sahm rule, which states that the economy is in recession when the three-month average of the unemployment rate is half a percentage point above the 12-month low. In this case, the unemployment rate was 3.5% in July 2023 before it began to gradually rise. The three-month average of the unemployment rate rose to 4.13%.
“The latest snapshot of the labor market points to a slowdown, not necessarily a recession,” said Jeffrey Roach, chief economist at LPL Financial. “However, early warning signs point to further weakness.”
Roach noted that the number of people working part-time for economic reasons rose to 4.57 million, an increase of 346,000 and the highest level since June 2021.
An alternative unemployment indicator that includes discouraged workers and those with part-time jobs for economic reasons rose 0.4 percentage points to 7.8%, the highest level since October 2021.
Long-term unemployment also increased slightly. A total of 1.54 million people reported being unemployed for 27 weeks or longer, the highest number since February 2022.
Wall Street had braced for modest gains following the July payrolls report, partly due to growth concerns but also because of the aftermath of Hurricane Beryl, which devastated parts of Texas, including the Houston metropolitan area.
Despite some concerns about economic developments, Fed Chairman Jerome Powell expressed confidence in the “solid” economy on Wednesday and said falling inflation data boosted confidence that the central bank could make cuts soon.
Markets have priced in a rate cut of at least a quarter of a percentage point for the Fed's remaining three meetings this year. The likelihood is increasing that the Fed could even go beyond the traditional quarter of a percentage point cut.
“Although the labor market has proven remarkably resilient over the past two years of high interest rates, it is important for the Federal Reserve to preempt a further weakening of the labor market by implementing the rate cut expected in September,” said Clark Bellin, chief investment strategist at Bellwether Wealth.
Correction: The forecast for average hourly earnings was for a 0.3% increase for the month. An earlier version misstated the percentage.
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