The United States economy revealed disappointing job growth figures for July, as fewer jobs were added than anticipated and the unemployment rate unexpectedly increased, according to the Bureau of Labor Statistics. Total nonfarm payrolls increased by only 114,000 last month, falling short of the consensus estimate of 175,000 job gains, as indicated by a survey compiled by financial data provider Bloomberg.
Furthermore, previous job gains were revised downwards, with June's numbers decreasing by 27,000 and May seeing a reduction of 2,000 positions. The unemployment rate experienced an increase, climbing to 4.3% in July, up from 4.1% in June, which deviated from the market's expectation for the month. BMO Chief U.S.
Economist Scott Anderson commented on the report, stating, "The large miss in July nonfarm payrolls and jump in the unemployment rate underlines what we have been seeing in the overall US economic data for some time now that aggregate demand is softening rapidly." Within the private sector, payroll growth was also lacking, rising by only 97,000 in July compared to a healthier 136,000 increase in June.
The consensus forecast had anticipated a gain of 140,000 jobs in this sector. The service industry contributed 72,000 new jobs this month, a significant decrease from June’s robust addition of 125,000 jobs. However, the goods-producing sector showed some improvement, with employment gains climbing to 25,000 from just 11,000. In terms of earnings, average hourly wages grew by a modest 0.2% in the month and 3.6% year-on-year, both figures falling short of Wall Street's expectations, which were a 0.3% monthly increase and a year-over-year growth target of 3.7%.
The labor force participation rate edged upward slightly, increasing by 0.1 percentage points to 62.7%, reflecting metrics on both a monthly and annual basis. Given the sluggish employment growth and the rising unemployment rate, the report may provide the Federal Reserve with the necessary impetus to initiate interest rate cuts in the upcoming months.
Anderson noted, "The report gives the Federal Reserve the green light to start cutting rates in September, and the market's attention will now shift focus toward how many and how deep the coming cuts will be." Current market sentiment is pricing in a 68% likelihood of a more significant 50-basis-point interest rate cut next month, a sharp increase from the 22% estimate just a day prior, as tracked by the CME FedWatch Tool.
Fed Chair Jerome Powell acknowledged on Wednesday that a rate cut in September "could be on the table," while reiterating that policymakers will remain data-dependent. Earlier this week, the Federal Open Market Committee opted to maintain the benchmark lending rate at the range of 5.25% to 5.50%, marking the eighth consecutive meeting in which rates were unchanged.
The latest employment figures present a complex landscape for U.S. economic policymakers seeking to navigate a seemingly softening labor market amidst persistent inflationary pressures..