The US labor market sent shockwaves through financial markets after the official July Nonfarm Payrolls (NFP) report recorded a contraction of 23,000 jobs. The Bureau of Labor Statistics data missed economists’ initial forecast of an 83,000-job gain, confirming a significant slowdown in hiring momentum.
Despite the drop in employment figures, the US unemployment rate fell slightly to 4.1%. However, the decline was largely due to a decline in the labor force participation rate to 61.4%, the lowest level in more than five years. This signaled that more and more Americans are choosing to exit the labor market.
The local government education sector led the decline in employment with a loss of 50,000 jobs, accompanied by a drop of 19,000 jobs in the retail sector and 14,000 in financial activities. The health care sector, which has been a mainstay, added just 22,000 jobs, remaining below its annual average.
Wage growth also performed dismally, with average hourly earnings rising just 2 cents in July. This pushed the annual wage growth rate down to 3.2%, below the 3.5% forecast, easing some of the pressure on wage-based inflation.
The surprising weakness in the jobs data has changed market expectations for the Federal Reserve's (Fed) monetary policy action. The probability of a rate hike at its September meeting has jumped to 44%, prompting a surge in U.S. stock index futures and a sharp decline in Treasury yields.
