The US labor market experienced a significant slowdown in July, with only 114,000 new jobs added, far below the expected 175,000-185,000. The unemployment rate rose to 4.3%, the highest since October 2021, exceeding forecasts of 4.1%. This marks the fourth consecutive monthly increase in unemployment, raising concerns about a potential recession.The job creation shortfall has been attributed to various factors, including the impact of Hurricane Beryl, which disrupted power in Texas and affected parts of Louisiana during the survey period. The labor market cooling is primarily due to low hiring rather than layoffs, a result of the Federal Reserve’s interest rate hikes in 2022 and 2023.Despite the concerning headlines, some economists offer a more nuanced view. Matthew Martin, US economist at Oxford Economics, stated, ‘Labor demand is slowing, but companies are not laying off workers in large numbers, which reduces the odds of a negative feedback loop of rising unemployment leading to income loss, reduction in spending, and more layoffs’.The employment report has significant implications for monetary policy. Federal Reserve Chairman Jerome Powell hinted at a potential rate cut, saying, ‘A rate cut could be on the table for our next meeting in September’. The Fed is now considering the risks to both sides of its mandate, after focusing primarily on inflation in recent years.Wage growth has also slowed, with average hourly earnings rising 0.2% in July to $35.07, up 3.6% from the same period last year. This represents the smallest year-on-year gain since May 2021.As the labor market shows signs of cooling and inflation approaches the Fed’s 2% target, the probability of a rate cut in September has increased. Jay Woods, global chief strategist at Freedom Capital Markets, noted, ‘The probability of a 50-basis-point cut increased to 70% for the September meeting’.The health of the labor market could influence voter sentiment ahead of the November presidential elections, adding another layer of significance to these economic indicators.
Key points
- US economy added only 114,000 jobs in July, far below expectations of 175,000-185,000.
- Unemployment rate rose to 4.
- Federal Reserve hints at potential rate cut in September as labor market cools and inflation approaches 2% target.
- Some economists argue the rising unemployment is due to an influx of new workers rather than job losses.
3%, the highest since October 2021, marking the fourth consecutive monthly increase.
Contradictions👾While some sources attribute the job growth slowdown to factors like Hurricane Beryl, others focus on the broader economic trends and Federal Reserve policies, suggesting a lack of consensus on the primary causes.
