U.S. job growth slowed far more than expected in July and the unemployment rate rose, the Labor Department reported on Friday, adding to concerns about a broader economic slowdown.
Nonfarm payrolls rose by just 114,000 this month, down from June’s downward revision of 179,000 and below Dow Jones’ forecast of 185,000. The unemployment rate rose slightly to 4.3%, the highest level since October 2021.
Average hourly earnings, a closely watched barometer of inflation, rose 0.2% this month and 3.6% year-over-year. Both figures were lower than their respective forecasts of 0.3% and 3.7%.
Stock futures fell further after the report, while bond yields plunged.
The labor market, long a pillar of the economy’s strength, has shown some signs of trouble recently, with job growth in July falling well below the 12-month average of 215,000.
“Temperatures may be hot across the country, but the job market is not experiencing a summer heat wave,” said Becky Frankiewicz, president of ManpowerGroup’s employment agency. “With cooling across the board, we lost the first quarter of the year. most of the proceeds.”
From an industry perspective, health care once again led job creation, adding 55,000 jobs. Other industries with larger gains included construction (25,000), government (17,000) and transportation and warehousing (14,000). The leisure and hospitality industry has been another major growth area over the past few years, adding 23,000 people.
The information services industry lost RMB 20,000.
While the establishment survey used for the overall employment data was dismal, the household survey was even more dismal, with an increase of just 67,000, while the number of unemployed people increased by 352,000. The participation rate of the working-age population rose slightly to 62.7%.
The report adds to recent mixed signals about the economy and nervousness in financial markets about how the Fed will respond.
While markets cheered signs on Wednesday that the Federal Reserve could cut interest rates as early as September, they quickly panicked when economic data on Thursday showed an unexpected increase in jobless claims and further weakness in the manufacturing sector.
That triggered the worst sell-off on Wall Street this year and renewed concerns that the Fed might wait too long to start cutting interest rates. Slower wage growth could help policymakers feel more confident about a return to their 2% inflation target.
The rise in unemployment brings into play the so-called Sam’s rule, which states that an economy enters a recession when the three-month average unemployment rate rises 0.5 percentage points above a 12-month low. In this case, the unemployment rate will be 3.5% in July 2023 and then start to gradually increase. The three-month average unemployment rate rose to 4.13%.
“The latest developments in the labor market are consistent with an economic slowdown, but not necessarily a recession,” said Jeffrey Roach, chief economist at LPL Financial. “However, early warning signs point to further weakness.”
Roach pointed out that the number of people working part-time due to economic factors jumped to 4.57 million, an increase of 346,000, reaching the highest level since June 2021.
The unemployment rate, another measure that includes discouraged workers and those working part-time for economic reasons, surged 0.4 percentage point to 7.8%, the highest level since October 2021.
Long-term unemployment also rose. The number of people reporting unemployment for 27 weeks or more totaled 1.54 million, the highest level since February 2022.
Wall Street has been bracing for a modest gain from the July jobs report, driven in part by worries about economic growth but also from the lingering effects of Hurricane Berrier. The storm severely damaged parts of Texas, including the Houston metropolitan area.
Despite some concerns about economic growth, Federal Reserve Chairman Jerome Powell on Wednesday expressed confidence in a “sound” economy and said loose inflation data was increasing confidence that the central bank could cut interest rates soon.
The market has fully priced in expectations that interest rates will be cut by at least 25 percentage points in the remaining three Fed meetings this year. Chances are rising that the Fed could cut interest rates by even more than the traditional quarter-percentage point.
Chief Investment Officer Clark Bellin said: “While the labor market has remained remarkably resilient over the past two years of rate hikes, it is important for the Fed to stay ahead of the curve by continuing its expected September rate cut. The trend towards a further slowdown in the labor market is significant.
Revised: Average hourly earnings forecast for this month is for growth of 0.3%. An earlier version incorrectly stated the percentage.
