The July jobs report showed that hiring badly undershot expectations, as the U.S. economy gained just 114,000 jobs. The unemployment rate jumped to the highest level since October 2021 as more people looked for work, while wage growth eased to a three-year low. After the jobs report, the S&P 500 dived below a key support level, even as markets priced in a faster pace of Fed rate cuts to fend off a possible brush with recession.
The jobs report appeared to confirm fears of a slowdown, flashing weakness across the board, in both the employer and household surveys. The Labor Department said there was "no discernible effect" from Hurricane Beryl. However, economist Ernie Tedeschi posted that the number of workers sidelined by bad weather jumped to 580,000 in July from 368,000 in June. A calendar effect, because the midmonth survey week didn't include the July 15 pay period, was also seen as a potential drag on monthly wage gains.
However, the weak jobs data is being taken at face value, following a number of signals on Thursday that stoked concern of a sharp economic slowdown. Those include a jump in initial jobless claims, the Institute for Supply Management's factory activity index sliding further into contraction territory and Amazon.com warning of rising consumer caution.
Jobs Report Hits And Misses
The 114,000 overall employment gain badly trailed economists' 180,000 forecast, according to Econoday. Private-sector employers added just 97,000 jobs, missing 155,000 forecasts. Government jobs rose by 17,000.
Hiring gains in May and June were revised down by a combined 29,000 jobs amid less government hiring than previously estimated.
Average hourly earnings rose 0.2% in July, below 0.3% estimates. Twelve-month wage growth of 3.6% undercut 3.7% forecasts, as wage growth fell to the lowest level since May 2021.
Employer data showed the average workweek slipping to 34.2 hours from 34.3 hours. That decline offset the modest increase in average hourly earnings, resulting in flat aggregate pay across the U.S. economy in July.
Stock Market Futures Slide As Intel, Amazon Plunge On Earnings
Household Survey
The headline job and wage figures come from the Labor Department's monthly survey of employers. The separate household survey details labor force participation, work status and the unemployment rate.
The household survey comes with a higher margin of error than the employer responses, so monthly changes should be taken with a grain of salt. However, the household survey has been known to lead the employer survey at economic turning points, so it shouldn't be ignored.
The rise in unemployment to 4.3% contrasted with predictions of a steady 4.1% rate.
That came as the ranks of the employed grew by 67,000. Meanwhile, the ranks of the unemployed swelled by 352,000, as 420,000 people joined the labor force, meaning they're either working or looking for work.
More Jobs Report Details
Health care and social assistance employment rose by 64,000. Economists consider that growth to be more secular than cyclical in nature.
The construction industry added 25,000 jobs. Leisure and hospitality employment grew by 23,000. Retail payrolls edged up by 4,000, while manufacturers added 1,000 jobs.
However, the information sector shed 20,000 jobs, while temporary help services cut 8,700.
Over the past three months, the private sector has added an average of 146,000 jobs per month, which still looks pretty solid. However, a diffusion index measuring the breadth of hiring across industries fell from 56 to 49.6 in July. Numbers below 50 mean that more industries are firing than hiring.
Fed Rate Cut Odds
After the July jobs report, markets are pricing in 63.5% odds of a half-point rate cut at the Sept. 18 Fed meeting, up from 30.5% before the data, according to CME Group's FedWatch page. Markets now see 86% odds of at least a full-point in Fed rate cuts by the end of the year, up from 41% ahead of the jobs report.
Now markets are pricing in 45.6% odds of a fifth quarter-point cut by the end of the year, up from 2.5% on Thursday.
In his news conference after Wednesday's policy update, Federal Reserve Chairman Jerome Powell said rate-setting committee members hadn't raised a possibility of a half-point rate cut. He did say that a significant degree of further labor-market slowing could lead the Fed to shift course. He noted a rise in the unemployment rate as among the factors that the Fed would be looking for.
S&P 500
The S&P 500 tumbled 1.8% in Friday stock market action after the jobs report, undercutting its 50-day moving average. That followed Thursday's 1.4% S&P 500 sell-off, which essentially reversed the prior day's Fed-fueled rally.
The 10-year Treasury yield dived another 18 basis points to 3.79%, hitting the lowest level since Dec. 27. The 10-year yield tumbled 41 basis points this week.
Through Friday, the S&P 500 stands 5.7% below its all-time record closing high on July 16, though still up 12.1% for the year.
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