July - Labor Slowdown Deepens
The labor market added 114,000 nonfarm payroll jobs in July, fewer additions than the 175,000 expected by economists. Meanwhile, unemployment rose 4.3%, up from 4.1% June. The unemployment rate is now at its highest level since October 2021. July's job additions came in lower than the 179,000 jobs added in June. Wage growth, an important measure for gauging inflation pressures, slowed to 3.6% year over year, down from 3.9% in June. On a monthly basis, wages increased 0.2%, lower than the 0.3% gain seen in June. Labor force participation rose slightly to 62.7% from 62.6% in June. Markets swiftly shifted to price in a roughly 70% chance the Fed cuts rates by 50 basis points after its next meeting on September 18th. Just a week ago, there was only an 11.5% chance. 249,000 initial jobless claims were filed in the week ending July 27, up from 235,000 the week prior and the most since August 2023, further evidence of cooling across the US economy. The confluence of data sparked a market sell-off as the 10-year Treasury yield tumbled to its lowest level since February, hovering near 3.86%. The unemployment rate hitting 4.3% also triggered the Sahm Rule, which measures the three-month average of the national unemployment rate against the previous 12-month low. The rule is triggered when unemployment rises 0.5% from that level and has successfully predicted recessions 100% of the time since the early 1970s. Asked whether he was worried about the Sahm Rule being triggered, Federal Reserve Chair Jerome Powell said, "The question really is one of are we worried about a sharper downturn in the labor market. The answer is we are watching carefully for that."
