July payrolls miss badly while unemployment rate falls
BlockBeats reported on Aug. 7 that the U.S. July nonfarm payrolls report disrupted the view that economic growth had remained firm, at a time when markets were watching the Federal Reserve’s policy path closely.
Friday’s data showed the U.S. economy lost 23,000 jobs in July, instead of adding the 80,000 positions expected by the market. Even with that weak headline figure, the unemployment rate unexpectedly declined to 4.1%.
That apparent contradiction was linked to a cumulative 0.7 percentage-point drop in labor-force participation since the beginning of the year.
Economists differ on what the report means for the Fed
Thomas Ryan, senior economist at Capital Economics, said the softness has not yet shown up across broader indicators, but the report is enough to push Fed officials to reassess the health of the labor market and lower their willingness to tighten monetary policy further in the near term.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said the weak employment data did ease pressure for a September rate hike. Still, she warned that the Fed does not make decisions based on a single variable. If next week’s inflation data comes in well above expectations, a cooler labor market may not be enough to quiet calls for more tightening inside the central bank.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said this marks a third straight year of what she described as a loss of summer momentum. In her view, slower job growth supports the case for leaving rates unchanged in September, but inflation data still holds the final say.
Next week’s CPI now takes center stage
Former Dallas Fed President Richard Fisher offered a different reading. He said labor conditions appear more resilient than expected, and that slower wage growth matters even more because it can help restrain consumer inflation expectations.
Bradford Smith, a portfolio manager at Janus Henderson, said the Fed is unlikely to change course because of a single data point.
With the payrolls report now digested, market attention has shifted quickly to next week’s Consumer Price Index reading, which many on Wall Street see as the deciding factor for the Fed’s September move.