US economy lost 23,000 jobs in July
Newsflash: The US economy shed jobs last month.
The US nonfarm payroll shows a fall of 23,000 jobs in July, startling economists who had expected a rise of around 80,000.
Employment declined in local government education and retail trade, the US Bureau of Labor Statistics reports, but continued to rise in health care (a steady provider of jobs for Americans).
However, the US unemployment rate dipped to 4.1% in July, down from 4.2% reported last month, suggesting people dropped out of the labor force.
Key events
Closing post
Time to wrap up…
US employers unexpectedly lost 23,000 jobs in July and gains for the previous two months were revised down sharply by a combined 103,000 jobs, painting a weaker picture of the labor market than past data indicated.
The unemployment rate, however, held steady at 4.1%. Economists had projected an unchanged unemployment rate and 83,000 new jobs for the month.
The latest data from the Bureau of Labor Statistics illustrates the continued summer slump in job growth amid ongoing conflict in the Middle East. Pressure has been mounting within the US Federal Reserve to raise interest rates to combat persistently high inflation, but July’s job report and its latest revisions may cool those expectations at the central bank’s next meeting.
July’s job losses were concentrated in local government education, with 50,000 jobs lost, and retail, which lost 19,000. The private sector, however, gained 30,000 jobs, with growth focused once again in healthcare.
Shares rose on Wall Street after the report was released, as traders calculated that the US Federal Reserve was less likely to raise interest rates in September. This also knocked the dollar.
Elsewhere…
Global food prices have hit their highest level in three and a half years, as summer heatwaves and conflict in Ukraine and the Middle East push up crop costs.
The UN Food and Agriculture Organization (FAO) index of food commodity prices rose last month to its highest level since January 2023, after a jump in prices for cereals, sugar and vegetable oil.
The US aviation regulator has ordered inspections of the fuselages of Boeing 737 Max planes for possible cracks in a component.
The Federal Aviation Administration airworthiness directive will affect an estimated 471 aircraft and follows reports of cracks in earlier Boeing models.
The inspections, which will start from September, follow a similar FAA regime for previous Boeing 737 Next Generation models dating back to 2021.
UK house prices were broadly stagnant in July as prospective buyers were squeezed by higher mortgage rates, uncertainty around the Middle East and stretched affordability, according to the lender Lloyds.
Have a lovely weekend! GW
Chris Zaccarelli, chief investment officer for Northlight Asset Management, argues that today’s jobs report is a “game changer”, because it takes some of the focus off fears of high US inflation.
Zaccarelli adds, via CNBC:
“Before today, many were expecting that the Fed had no choice but to raise rates in order to fight stubbornly high inflation, because the job market was so strong, but this report shows that isn’t the case.”
Gold has hit a seven week high after today’s unexpected drop in US payrolls.
Spot gold jumped by 3%, and is now trading around $4,345 an ounce.
July’s weak US jobs report underlines there is no need for the Federal Reserve to rush into an interest rate rise, argues Steve Blitz, chief US economist at TS Lombard.
Say goodbye to September, maybe even December too. [Fed chair Kevin] Warsh’s reaction function is growth (it’s that simple), rooted in the strong belief that growth can be accompanied by low inflation.
Inflation is a lagging indicator, and high oil prices and tariffs are working their way out of the inflation data. Given that, and strong Q2 productivity data (a residual, but Warsh will run with it in any event), there is zero chance of a rate hike. I have been writing this from the get-go from a policy bias standpoint.
The softer employment data bring into question whether even a rate hike is required. Because data trends matter most, let’s wait and see how the trends work out. Point is – there is no rush for action.
US wage growth also slowed last month, today’s jobs report shows.
On an annual basis, wage growth eased to 3.2%, down from 3.5% in June, which is another indication that the labor market is cooling.
Fawad Razaqzada, market analyst at Forex.com, says:
The softer wage figures will provide some reassurance to policymakers concerned about persistent inflationary pressures, while also adding to evidence that labour demand is gradually losing steam.
New York stock market opens higher after poor jobs report
Today’s surprisingly weak US jobs report has cheered investors on Wall Street.
That’s not because they get a kick out of other people losing their jobs, but because a weak labor market means it will be harder for the Federal Reserve to raise interest rates.
The S&P 500 share index rose by 25.2 points, or 0.33%, at the open to 7735.18 points.
The tech-focused Nasdaq saw a larger bounce – it’s up 0.7%.
The US private sector did add jobs in July, points out consultancy Capital Economics:
The underlying picture in the private sector was somewhat better, but still far from strong. Private payrolls grew by 30,000, led by pockets of strength in construction (+22,000) and healthcare and social assistance (22,600), although employment growth in the latter continued to slow relative to its average.
These gains were partially offset by sizeable declines in retail trade (-19,400), nondurable goods manufacturing (-13,000) and financial activities (-14,000).
The start of school holidays is probably responsibly for the 50,000 drop in employment in local government education last month.
And bars and restaurants may have cut back on jobs as the FIFA World Cup reached its conclusion.
Carson Group’s chief macro strategist Sonu Varghese explains:
“Headline payrolls were really disappointing, with 23,000 jobs lost in July. But the weakness was concentrated in local government, largely due to school-calendar seasonal effects, and leisure and hospitality as the World Cup boost rolled off.
The bigger picture is that unemployment fell to 4.1%, its lowest in a year. Combined with low initial jobless claims, that suggests the labor market remains in solid shape despite the volatility in payrolls.”
Is AI a factor behind drop in jobs?
Could AI be to blame for the drop in US employment last month?
Kyle Rodda, senior financial market analyst at Capital.com, suggests the rise of AI bots could be a factor, saying:
The interesting dynamic is the drop in the jobless rate. Another function of falling participation and the fact that data comes from a different survey.
At a higher level, there could be the fingerprints of AI in this jobs report too: employers possibly replacing workers with bots. We will have to dig into the details and wait for future data to get a clearer picture of that though.
Nic Puckrin, a former Goldman Sachs analyst, says:
On top of this, consumer confidence has crumbled and AI is swallowing thousands of white-collar jobs. So, when you look under the hood, the US economy is looking far more anaemic than the numbers suggest.
Ordinary Americans are in a tough spot, while the Federal Reserve must decide whether to sacrifice employment to control inflation or vice versa.”
According to outplacement firm Challenger, Grey & Christmas, AI has been the top reason given for layoffs in the last five months.
The US labor force participation rate, which measures how many people are either in work or looking for a jobs, has dropped.
The labor force participation rate slipped to 61.4%, which explains how the unemployment rate could fall even though the number of jobs also declined.
Dollar dented by bad jobs report
The dollar is falling too.
The dollar index, which tracks the greenback against a basket of other currencies, is down 0.4% today.
That’s lifted the pound up by half a cent to $1.35.
Odds of September rate rise are falling
Such a bad jobs report is sending ripples through the financial markets.
Traders are rushing to slash bets on a rise in US interest rates next month, concluding that the Federal Reserve won’t want to tighten policy when the economy is shedding jobs.
The rate futures market has now priced in just a 43.9% chance of Fed tightening in September, compared with 57% before the jobs report, Reuters flags.
The latest Household Survey Data, just released, also shows what’s going on in the US labor market.
Here’s a flavour:
Among the major worker groups, the unemployment rates for teenagers (12.1 percent) and people who are Hispanic (4.6 percent) declined in July. The jobless rates for adult men (3.9 percent), adult women (3.7 percent), and people who are White (3.6 percent), Black (6.3 percent), or Asian (4.0 percent) showed little or no change over the month.
Among the unemployed, the number of people on temporary layoff increased by 153,000 to 921,000 in July. The number of permanent job losers changed little at 1.7 million.
In July, the number of people jobless less than 5 weeks edged down to 2.0 million and is down by 344,000 over the year. The number of long-term unemployed (those jobless for 27 weeks or more) edged down over the month to 1.8 million but changed little over the year. The long-term unemployed accounted for 25.5 percent of all unemployed people in July.
Where jobs were lost, or created, last month
Here’s the details of where jobs were lost across the US economy last month.
Employment in local government education declined by 50,000 in July.
Retail trade lost 19,000 jobs in July, including a 21,000 drop at warehouse clubs, supercenters, and other general merchandise retailers and a 5,000 drop in employment at gasoline stations and fuel dealers.
Employment in financial activities fell by 14,000.
But….employment in health care continued its upward trend, rising by 22,000
Employment showed little change over the month in other major industries, including mining, quarrying, and oil and gas extraction; construction; manufacturing; wholesale trade; transportation and warehousing; information; professional and business services; social assistance; leisure and hospitality; and other services.
Fewer jobs created in May and June than first thought
Not only did the US economy lose jobs in July, it created fewer jobs than first thought in May and June.
The change in total nonfarm payroll employment for May has been revised down by 66,000, from +129,000 to +63,000, and the change for June was revised down by 37,000, from +57,000 to +20,000.
