U.S. July Jobs Report Shows Unexpected Decline in Payrolls and Slight Drop in Unemployment
Nonfarm payrolls fell by 23,000 in July, while the unemployment rate edged down to 4.1%, prompting mixed reactions from economists and market participants.
The Labor Department reported on Friday that nonfarm employment decreased by a seasonally adjusted 23,000 in July, contrary to a Dow Jones consensus forecast of an 83,000 gain. The unemployment rate slipped to 4.1% as the labor-force participation rate fell to 61.4%, the lowest level in more than five years.
Revisions to earlier months showed May’s job gain trimmed to 63,000 and June’s to a loss of 20,000, pulling the 12-month average down to 34,000. Job losses were led by 50,000 fewer local-government education positions and 19,000 fewer retail jobs, while financial activities shed 14,000 and leisure-hospitality shed 40,000, a trend analysts linked to the recent World Cup conclusion. Healthcare added 22,000 jobs, below its 12-month average of 36,000, and construction also rose by 22,000. Private payrolls grew by 30,000, offsetting a net loss of 53,000 government jobs.
Average hourly earnings rose by only two cents, leaving the 12-month wage growth rate at 3.2%, below the 3.5% forecast and the lowest since May 2021. The report arrives as Federal Reserve officials remain divided on future rate moves; the Federal Open Market Committee recently voted 9-3 to keep its benchmark rate unchanged.
"The July employment report solidified that the labor market is not out of the woods quite yet," said Nicole Bachaud, a labor economist at ZipRecruiter.
"This morning's report is a game changer in the sense that all of the recent focus has been on inflation and this report highlights the risks that are embedded in the labor market as well," said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
"While the unemployment rate is falling, that is mostly for the wrong reason—not enough workers," wrote Bill Adams, chief U.S. economist at Fifth Third Commercial Bank.
Traders adjusted expectations for Federal Reserve rate hikes, with CME Group's FedWatch gauge showing a 44% probability of a September move and 58.3% for October. Stock-market futures rose, and Treasury yields fell following the data release.