The U.S. economy lost an unexpected 23,000 jobs in July, indicating that the job market is now slowing down quickly. Economists had been expecting to add 83,000 jobs, which would have been a big miss. The job loss did not prevent the unemployment rate from dropping a bit to 4.1%.
The gloomy economic outlook was compounded by the Bureau of Labor Statistics‘ downward adjustment of 103,000 jobs on its previous two months’ figures. The month of May saw its total jobs number cut by 66,000 to 129,000, while the jobs increase in June was reduced to 57,000.
The increase in wages was also significantly below the forecast, with pay increasing only 0.1% from June and 3.2% year-on-year. It is the smallest increase in wages in five years, and the weakest the wages have been in a while when inflation is at 3.5%. In addition, labor force participation fell to its lowest level since February 2021, as more than two million persons have left the labor force since November.
These labor issues are taking place amid rising world energy prices, as a result of the current Iran war. The domestic gas price is averaging $4.04, as the Strait of Hormuz is severely disrupted, which will further make efforts by the Federal Reserve to return price inflation to its 2% target difficult.
The biggest job losses were in local government education, a loss of 50,000 jobs, mostly due to the summer break. But there was also a significant impact on private sectors that are also closely tied to the economy: Loss of 40,000 jobs for leisure and hospitality; Loss of 19,000 jobs for retail trade; Loss of 14,000 jobs for financial activities.
However, there were a couple of positive elements to the economy. The health care industry saw a gain of 22,000 positions, but at a rate somewhat less than the previous 12-month period. Construction and manufacturing each brought on 22,000 and 5,000 positions, respectively, with much of that being driven by the continued growth of AI data centre construction.
In spite of the troubling job report, the financial markets cheered, as investors were betting that the slowing labor market will hold off future interest rate increases. The S&P 500 ended up 0.6% higher, the Nasdaq Composite ended up 1.3% higher and the Russell 2000 ended up 1.1% higher.
The report also led to a substantial decline in bond yields. The 10-year yield on the U.S. Department of the Treasury‘s 10-year note dropped to about 4.6%. The average 30-year fixed mortgage rate dropped by 0.06% to 6.74% this drop, which was the lowest since June.
In the end, central bankers have let off some steam thanks to the weak jobs report. Futures markets have continued to drop the chances that the Fed will raise interest rates in September from more than 50 percent to about 40 percent, which could give some relief to borrowers while the U.S. Department of Labor keeps an eye on an anemic labor market.
