BUSINESS – The U.S. labor market delivered a surprising jolt in July, with employers cutting jobs instead of adding them as economists had expected. According to CNBC’s report on the latest employment data, nonfarm payrolls fell by 23,000 last month, sharply missing the Dow Jones forecast for an 83,000 increase. The result marks a notable change for an economy that had already been showing signs of losing momentum.
The weakness becomes more striking when earlier figures are taken into account. June payroll growth was revised down to just 20,000 from the previously reported 57,000, while May was also revised lower. Together, the revisions reduced job creation across May and June by 103,000, painting a considerably softer picture of hiring activity than earlier estimates suggested. Reuters likewise reported that the July decline and downward revisions are raising fresh questions about the Federal Reserve’s next move.
Curiously, the unemployment rate moved in the opposite direction, slipping to 4.1% from 4.2% in June. That improvement, however, came alongside a decline in labor-force participation. About 264,000 people left the workforce, pushing participation down to 61.4%, its lowest level in roughly five and a half years. In other words, the lower unemployment rate does not necessarily signal a stronger job market.
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Several industries contributed to the slowdown. Local government education employment dropped by 50,000 jobs, while retail payrolls fell by 19,000. Financial activities also continued to weaken, losing 14,000 positions. Healthcare remained a source of employment growth, adding 22,000 jobs, although that was well below its average monthly gain of 36,000 over the previous year. Construction and manufacturing employment changed little.
The report could complicate the Federal Reserve’s interest-rate calculations. Markets reduced expectations for a September rate hike after the data, while Treasury yields and the dollar moved lower. Christopher Rupkey, chief U.S. economist at FWDBONDS, said, “The labor market appears to have slammed the brakes on new hiring,” while warning that the outlook could darken if pessimism encourages more people to leave the workforce. Markets face a less predictable economic outlook. Next week’s inflation figures may therefore become the next crucial piece of the economic puzzle.
