Washington (AFP) – The US jobs market cooled much more than expected in July, with unemployment reaching its highest rate since 2021, according to government data released on Friday. This has fueled calls for interest rate cuts as high levels of unemployment bite. The world’s biggest economy added 114,000 jobs last month, down from June’s revised figure of 179,000, as reported by the Department of Labor. The jobless rate rose to 4.3 percent, the highest it has been since October 2021.
“Today’s report shows employment is growing more gradually at a time when inflation has declined significantly,” said President Joe Biden in a statement. However, former president Donald Trump’s campaign highlighted the elevated costs of living and rising unemployment as he seeks another term in the White House, stating, “America’s working families are hurting.” The report brings the Federal Reserve closer to its first rate cut since the pandemic, as the economy cools and inflation moves toward officials’ two percent target. Nonetheless, some economists caution that the central bank may need to take stronger policy action in the coming months.
Wall Street stocks slid further into the red on Friday, with the tech-heavy Nasdaq index dropping as much as three percent following the employment report. While analysts have raised concerns about the US economy signaling an early recession, Oxford Economics chief US economist Ryan Sweet noted that “this cycle is unique.” In recent times, unemployment has edged up as more people entered the labor force, which may diminish the risk of a vicious cycle of rising jobless rates leading to income loss and further employment cuts.
In July, average hourly earnings rose less than analysts expected by 0.2 percent to $35.07, according to the Labor Department. On a year-on-year basis, wage growth slowed to a pace last seen in 2020.
“Job growth was weak across the board, with small gains or losses across the economy,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. He added that this slowdown is consistent with trends observed elsewhere, including increases in initial claims for unemployment insurance and signs of contraction in manufacturing. Employment continued to trend upward in healthcare, construction, and transportation and warehousing, while the information sector saw job losses. Government employment, which has slowed in recent months, remained relatively unchanged in July.
“There are signs that momentum is waning,” commented KPMG chief economist Diane Swonk regarding public sector hiring in a recent note.
Senator Elizabeth Warren, a leading progressive, stated that Fed Chair Jerome Powell “made a serious mistake not cutting interest rates” in the most recent central bank meeting. “The jobs data is flashing red,” she added in a social media post. Nationwide chief economist Kathy Bostjancic warned that the July report’s “across-the-board weakness” supports the view that the Fed is late to begin easing monetary policy. She noted that the bond market anticipates much more aggressive rate cuts, with at least 100 basis points expected by year-end.
Sweet mentioned that a 25 basis point cut in September “is essentially a done deal,” with the likelihood shifting toward three cuts instead of two this year. Powell, this week, “downplayed the potential” for a 50 basis point cut in September, according to Sweet, unless labor market data continues to soften. Economists Carl Weinberg and Rubeela Farooqi of High Frequency Economics observed that even with historically low unemployment, “further decay will trigger alarms at the Fed about its second mandate,” which refers to the central bank’s dual mandate of price stability and maximum employment. Analysts will be keenly watching Powell’s remarks at the upcoming Jackson Hole symposium later this month to understand his perspective on monetary policy going forward.
© 2024 AFP
