Key facts
- The July jobs report indicated a contraction of 23,000 jobs, falling short of economists' forecasts.
- Average job growth over the preceding three months was 21,000.
- Hourly earnings growth slowed to its weakest pace since May 2021.
- The unemployment rate decreased to 4.1% in July.
- Market expectations for a September Federal Reserve rate hike fell below 50% following the report.
The July jobs report revealed a contraction in payroll employment, a development that has significantly diminished the urgency for the Federal Reserve to implement an interest-rate hike at its upcoming September meeting. Economists noted that the disappointing data has weakened the arguments of those who believed the Fed had been too slow to act and that inflation was accelerating due to a strengthening labor market.
Payroll employment fell by 23,000 in July, a stark contrast to the 83,000 gain anticipated by Wall Street economists. The report also indicated broader weakness, with job gains averaging only 21,000 over the past three months and hourly earnings rising at their slowest pace since May 2021. Despite these figures, some economists, like Michael Feroli, chief U.S. economist at JPMorgan Chase, believe the weakness is overstated and do not foresee a significant downturn in economic momentum, suggesting the report only slightly reduced the probability of a hike.
Richmond Fed President Tom Barkin indicated that the jobs report had not changed his perspective on a stable U.S. economy, characterizing the labor market as being in a "weak balance" for the past 18 months with a low-hire, low-fire equilibrium. Many Fed officials have also emphasized the importance of the unemployment rate, which remained low and decreased to 4.1% in July from 4.2% in June.
Market participants reacted by lowering their expectations for a September rate hike, with derivative market traders reducing their probability estimates to below 50% from 67% a week prior. Analysts at Payden & Rygel still anticipate the Fed may lean towards rate hikes, not due to labor market overheating, but because of persistent inflation concerns. However, they noted that weak job growth could provide a reason for more cautious Fed members to delay further hikes.