The U.S. Labor Department released a report showing July's payroll numbers significantly missed expectations, prompting increased speculation about potential Federal Reserve interest rate cuts.
The economy added only 114,000 jobs in July, falling short of the forecasted 175,000. This development comes alongside a rise in the unemployment rate to 4.3% for July, up from 4.1% in June.
The uptick in the unemployment rate is partly attributed to an increase in the labor force participation rate, which edged higher to 62.7% in July from 62.6% in June. Despite more individuals entering the workforce, average hourly earnings grew by a modest 0.2% in July and have risen 3.6% over the past 12 months. The May and June payroll figures were also revised downward by a total of 29,000 jobs.
Initial jobless claims have climbed to their highest level since August 2023, reaching 249,000 in the latest week. Continuing claims followed suit, hitting 1.877 million, marking the highest point since November 2021. The data indicates a weakening labor market, which could increase the likelihood of the Fed reducing key interest rates.
ADP's report on Wednesday revealed that the private sector added just 122,000 jobs in July, another figure that fell below the anticipated 150,000. This slowdown in job growth coincides with a report from the Stanford Digital Economy Lab, noting that wage growth is at its lowest since 2021. Furthermore, the employment cost index's rise of only 0.9% in the second quarter represents the smallest quarterly increase since 2021.
Following the Federal Open Market Committee (FOMC) meeting, yields on 2-year Treasury notes and 10-year Treasury bonds dipped to 3.92% and 3.8%, respectively. With the Fed's rates remaining above these market rates, analysts predict a rate cut at the upcoming September 18th meeting is now certain, and another reduction following the Presidential election on November 7th is also likely.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.