U.S. Job Growth Slows Dramatically in July

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U.S. Job Growth Slows Dramatically in July

Job growth in the U.S. slowed significantly in July, with the unemployment rate ticking higher, signaling potential concerns of a broader economic slowdown, according to the Labor Department's report on Friday. Mortgage rates are down on the data release.?

Key Highlights:

• Nonfarm Payrolls: Increased by only 114,000 in July, a sharp decline from June's downwardly revised 179,000 and well below the Dow Jones estimate of 185,000.
• Unemployment Rate: Edged up to 4.3%, marking its highest level since October 2021.
• Average Hourly Earnings: Rose 0.2% for the month and 3.6% year-over-year, both figures missing the forecasts of 0.3% and 3.7%, respectively.
• Market Reaction: Stock market futures declined further, and Treasury yields dropped following the report.

Labor Market Trends:

The labor market, which had been a strong point of the economy, is now showing signs of weakness. The average payroll increase over the past 12 months was 215,000, highlighting July's underperformance.

Expert Insights:

Becky Frankiewicz, President of the ManpowerGroup employment agency, commented, "Temperatures might be hot around the country, but there’s no summer heatwave for the job market. With across-the-board cooling, we have lost most of the gains we saw from the first quarter of the year.”

Recession Indicators:

The rise in the unemployment rate raises concerns regarding the Sahm Rule, which indicates a recession when the three-month average of the jobless rate is half a percentage point higher than its 12-month low. The unemployment rate was 3.5% in July 2023 and has since risen to a three-month average of 4.13%.

Jeffrey Roach, Chief Economist at LPL Financial, stated, “The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession. However, early warning signs suggest further weakness.”

Federal Reserve Outlook:

Despite concerns about economic growth, Fed Chair Jerome Powell expressed confidence in the economy's solidity and noted that easing inflation data is boosting confidence for a potential rate cut soon. Markets are anticipating at least a quarter percentage point rate cut at each of the remaining three Fed meetings this year, with rising odds of more significant reductions.

Clark Bellin, Chief Investment Officer at Bellwether Wealth, emphasized the importance of proactive measures by the Federal Reserve, saying, “While the labor market has remained remarkably resilient over these past two years of elevated interest rates, it’s important for the Federal Reserve to stay ahead of any further labor market slowing by proceeding with its expected September rate cut.”

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We'll continue to monitor mortgage rate trends and keep you updated in future newsletters.

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