US labour market slows, Wall Street bets on a more cautious Fed
The Bureau of Labor Statistics' July report shows an unexpected drop of 23,000 nonfarm payrolls and downward revisions to the previous two months. US stock markets rise on expectations of a Federal Reserve less inclined to raise interest rates.
US nonfarm employment fell unexpectedly in July, shedding 23,000 jobs, in a report the Bureau of Labor Statistics published with weaker-than-expected data. The decline is due in particular to a reduction of 53,000 jobs in the public sector, accompanied by signs of weakness in retail trade, leisure and hospitality, and slower-than-usual growth in the healthcare sector.
The unemployment rate fell only slightly, to 4.1 percent. More significant, according to the data released, was the revision to the estimates for the previous two months: the Bureau of Labor Statistics revised the combined figure for May and June downward by a total of 103,000 fewer jobs than initially reported. May’s figure was cut by 66,000, down to an increase of 129,000 jobs, while June’s was reduced by 37,000, to a gain of just 57,000 jobs.
Wages also showed signs of slowing: year-over-year growth in average hourly earnings fell to 3.2 percent, the lowest level since May 2021.
| Indicator | Value | Change |
|---|---|---|
| Nonfarm payrolls (July) | -23,000 | unexpected, below expectations |
| May revision | 129,000 | -66,000 from initial figure |
| June revision | 57,000 | -37,000 from initial figure |
| Unemployment rate | 4.1% | slight decline |
| Annual wage growth | 3.2% | lowest since May 2021 |
The reaction of financial markets was immediate and in the opposite direction to what would be expected from a weak employment figure taken in isolation: US stock futures rose, Treasury yields fell, and the S&P 500 index was on track for its best week since April. The logic behind this move is investors’ bet on a Federal Reserve less inclined toward restrictive measures in the coming months, precisely because of the labour market’s slowdown.
According to the CME Group’s FedWatch tool, the probability that the Federal Reserve will keep interest rates unchanged at its September meeting rose to 55.9 percent, from 45 percent the day before, while the probability of a rate hike fell to 44.1 percent. Futures tied to the Dow Jones Industrial Average rose by nearly 200 points in trading following the report’s release.
The combination of weaker-than-expected employment and downward revisions over two consecutive months represents, in the data gathered, the clearest signal so far of a possible shift in US monetary policy compared with previous weeks, when market expectations were oriented differently.
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