A Closer Look
The July jobs report painted a picture of a slowing economy, with employers adding only 114,000 jobs, significantly fewer than the 175,000 expected by economists. This miss, coupled with a jump in the unemployment rate to 4.3%, all but guarantees a rate cut from the Federal Reserve at its September meeting.
While job growth had been slowing prior to July, it had remained relatively strong despite the Fed's rate hikes. However, last month's figures raise concerns about a sharper economic slowdown due to elevated borrowing costs. This has prompted some economists to anticipate a more substantial rate cut in September.
The Fed could cut rates by 0.5 percentage points in September, double the 0.25 percentage point cut expected before the jobs report. This shift in narrative reflects growing concerns about a "hard landing" for the economy.
On Wednesday, the Fed left its benchmark interest rate unchanged, but Chair Jerome Powell signaled a possible rate cut in September if inflation continues to abate. He acknowledged the slowdown in job growth but emphasized that officials were closely monitoring the labor market for signs of weakness.
The stock market reacted negatively to the jobs report, continuing a downturn that began on Thursday. The Dow Jones Industrial Average dipped 1.2%, the S&P 500 shed 1.5%, and the tech-heavy Nasdaq lost 2.3%.
The unemployment rate now stands at its highest point since late 2021, although it remains historically low. This jump is due to more workers entering the labor force than exiting it, with the labor force participation rate for people between 25 to 54 rising to its highest level since 2001.
While this increase in the labor force is positive, it can also boost the jobless rate if not all those workers find jobs.
Despite the slowdown in job growth, there was some good news in the report. The labor force itself rose by a strong 420,000 in July, the biggest increase since March. Additionally, average hourly earnings were up 3.6% in July from a year ago, staying just ahead of the current pace of inflation. However, this was the smallest increase since May 2021.
Overall, the July jobs report paints a mixed picture of the economy. While there are some positive signs, the slowdown in job growth and the jump in the unemployment rate raise concerns about a potential recession. The Federal Reserve is likely to respond by cutting interest rates in September, but the extent of the cut remains uncertain.