Key Takeaways
- U.S. Nonfarm Payrolls in July significantly missed expectations, rising by only 73,000 against an estimated 104,000, and sharply down from the revised previous month's 147,000.
- The unemployment rate edged up to 4.2% from 4.1%, aligning with estimates.
- Market futures now indicate a 75% probability of the Federal Reserve cutting interest rates by 25 basis points at its September meeting, a substantial increase from 45% before the jobs data release.
- U.S. Treasury yields fell following the report, with two-year yields dropping 8 basis points to 3.871%, while the dollar weakened against the yen.
- Average hourly earnings showed mixed signals, with a month-over-month increase of 0.3% meeting estimates, but a year-over-year rise of 3.9% exceeding both previous figures and expectations.
The U.S. labor market showed signs of significant cooling in July, with Nonfarm Payrolls coming in well below forecasts, prompting a sharp increase in expectations for a Federal Reserve interest rate cut as early as September. The data suggests a less dynamic labor market, which could influence the Fed's monetary policy stance.
July Jobs Report Details
The U.S. economy added 73,000 Nonfarm Payrolls in July, a notable deceleration from the prior month's revised 147,000 and falling short of the 104,000 consensus estimate. Private payrolls also saw a slowdown, increasing by 83,000 against an estimated 100,000. Manufacturing payrolls continued to decline, dropping by 11,000, while government payrolls also decreased by 10,000. The three-month average change for Nonfarm Payrolls plummeted to 35,000 from a previous 150,000.
The unemployment rate inched up to 4.2% in July from 4.1% in June, aligning with analysts' expectations. Average hourly earnings, a key inflation indicator, presented a mixed picture. On a month-over-month basis, earnings rose by 0.3%, matching estimates. However, the year-over-year increase was 3.9%, higher than the 3.7% previous figure and the 3.8% estimate.
Federal Reserve Implications and Commentary
The weaker-than-expected jobs data has significantly shifted market sentiment regarding the Federal Reserve's next move. Futures markets are now pricing in a 75% chance of a 25-basis-point interest rate cut at the Fed's September meeting, a substantial jump from the 45% probability observed before the payrolls report.
Recent comments from Federal Reserve officials underscore the evolving policy debate. Governor Michelle Bowman stated that with slowing growth and a less dynamic labor market, it is appropriate to begin gradually moving the moderately restrictive policy stance toward a neutral setting. Bowman also warned that delaying action could worsen the labor market and slow economic growth, emphasizing the need for more focus on employment risks.
Similarly, Governor Christopher Waller, who previously dissented on a rate decision, reiterated his belief that a 25-basis-point reduction was appropriate. Waller suggested that data now argues for monetary policy to be near neutral, rather than restrictive, and that policymakers should "look through" tariffs as a one-time price event if inflation expectations remain anchored. He stressed there's "no need to keep policy rate same and risk sudden drop in jobs."
Market Reaction
In response to the jobs report, U.S. Treasury yields fell across the curve. The two-year Treasury yield dropped 8 basis points to 3.871%. The 10-year Treasury note closed steady at 4.356% after an initial decrease. In currency markets, the Dollar-Yen pair decreased by 0.8%, moving to 149.60 from 150.51, reflecting a weakening dollar as rate cut expectations solidified.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.