Labour Department reports job growth slowing to 114,000 in July, with unemployment up to 4.3%
Job growth in the US slowed significantly in July, and the unemployment rate increased, the Labour Department reported Friday, according to CNBC.
Nonfarm payrolls rose by just 114,000, a drop from the revised 179,000 in June and below the Dow Jones estimate of 185,000. The unemployment rate climbed to 4.3 percent, the highest since October 2021.
Average hourly earnings grew by 0.2 percent for the month and 3.6 percent from a year ago, both below the forecasts of 0.3 percent and 3.7 percent.
Stock market futures fell further following the report, and Treasury yields dropped. The labour market, which had been a strong economic pillar, now shows signs of trouble, with July’s payroll increase well below the 12-month average of 215,000.
“Temperatures might be hot around the country, but there’s no summer heatwave for the job market,” said Becky Frankiewicz, president of ManpowerGroup. “With across-the-board cooling, we have lost most of the gains we saw from the first quarter of the year.”
Health care led job creation, adding 55,000 positions. Construction followed with 25,000, government with 17,000, and transportation and warehousing with 14,000. Leisure and hospitality added 23,000 jobs. However, the information services sector lost 20,000 jobs.
The household survey revealed even more discouraging figures, with only 67,000 jobs added and 352,000 more people unemployed. The participation rate inched up to 62.7 percent.
This report adds to mixed signals about the economy, with financial markets on edge about the Federal Reserve’s next moves.
While markets initially responded positively to hints from the Fed about a potential interest rate cut in September, they turned apprehensive after Thursday’s economic data showed an unexpected increase in unemployment benefit filings and a weakening manufacturing sector.
This led to the worst Wall Street sell-off of the year, renewing fears that the Fed might be delaying interest rate cuts for too long. Easing wage gains could give policymakers more confidence that inflation is moving towards their 2 percent target.
The rise in unemployment brings the Sahm Rule into play, indicating a recession if the three-month average of the jobless rate is half a percentage point higher than its 12-month low.
In July 2023, the unemployment rate was 3.5 percent before starting its gradual rise, with the three-month average now at 4.13 percent.
“The latest snapshot of the labour market is consistent with a slowdown, not necessarily a recession,” said Jeffrey Roach, chief economist at LPL Financial. “However, early warning signs suggest further weakness.”
Roach noted that the number of people working part-time for economic reasons increased to 4.57 million, the highest since June 2021.
An alternate measure of unemployment, including discouraged workers and those in part-time jobs for economic reasons, rose by 0.4 percentage points to 7.8 percent, the highest since October 2021.
Long-term unemployment also increased, with 1.54 million people out of work for 27 weeks or more, the most since February 2022.
Wall Street had anticipated modest gains from the July payrolls report, partly due to concerns about growth and the residual impacts of Hurricane Beryl, which severely damaged parts of Texas, including Houston.
Despite concerns about economic growth, Fed Chair Jerome Powell expressed confidence in the “solid” economy on Wednesday, citing easing inflation data as a reason for potential rate cuts soon.
Markets have fully priced in a rate cut of at least a quarter percentage point at each of the three remaining Fed meetings this year, with rising odds that the Fed may go beyond traditional quarter-point reductions.
“While the labour market has remained remarkably resilient over these past two years of elevated interest rates, it’s important for the Federal Reserve to stay ahead of any further labour market slowing by proceeding with its expected September rate cut,” said Clark Bellin, chief investment officer at Bellwether Wealth.
