Other Weak Details

• The July jobs report was soft, with job growth of 114,000 and downward revisions to job growth in May and June. Job growth has slowed from its pace last year. 

• The unemployment rate 0.2 percentage point to 4.3% in July, the highest rate since late 2021.

• Wage growth was slower in July, and the average workweek fell. 

• The soft jobs report supports a cut in the fed funds rate in mid-September. 

• Market reaction was negative, with stock prices down and lower yields on Treasurys.

The labor market is softening in mid-2024, according to the July employment report from the Bureau of Labor Statistics. Job growth is slowing, the unemployment rate is increasing, and wage growth is softening. Higher interest rates in 2022 and 2023 are weighing on the U.S. economy. The labor market is still solid, but is definitely not as good as it was last year. The Federal Reserve wanted to see a bit more labor market slack, and now it is getting that. With the labor market softening and inflation easing the Federal Open Market Committee is ready to cut the fed funds rate, their key short-term policy rate, at their next meeting on September 18. Further rate cuts are likely in 2024 and 2025 as inflation continues to move toward the central bank’s 2% objective. Job growth is likely to slow further in the near term, before interest rate cuts work their way through the economy and lead to a pickup in job growth in 2025. 

Employment increased by just 114,000 in July from June, according to a survey of employers. There were also combined downward revisions to job growth in May and June of 29,000. Over the last three months the U.S. economy has added 170,000 jobs on average, down from average monthly gains of 250,000 for all of 2023. The private sector added 97,000 jobs in July, while government employment increased by 17,000. 

The unemployment rate increased to 4.3% in July from 4.1% in June, and 3.7% at the beginning of the year. This is the highest unemployment rate since late 2021, as the economy was recovering from the pandemic, although it is still historically low. Employment in a survey of households (different from the survey of employers) increased by 67,000 in July; job growth in the household survey has been lagging that in the employer survey for the past year. There was some good news from the employer survey, as the labor force—the number of adults working or looking for work—rose by a strong 420,000 in July, the biggest increase since March. The labor force participation rate—the share of adults working or looking for work—rose to 62.7% in July from 62.6% in June; the rate has been between 62.5% and 62.8% for about a year and a half, consistently below the 63%+ rate from before the pandemic. 

The average workweek fell slightly to 34.2 hours in July from 34.3 hours from June. Average hourly earnings rose 0.2% in July, after a 0.3% increase in June. On a year-ago basis wage growth was 3.6% in July, down from 3.9% growth in June. This is the softest wage growth since mid-2021, when the pandemic distorted the numbers, and a peak of almost 6% in early 2022; the cooling labor market is leading to slowing wage growth and inflation. 

Goods-producing industries added 25,000 jobs in July. There were job gains in construction of 25,000 in July, close to the industry average of 20,000 so far in 2024, despite high interest rates. But manufacturing employment was flat in July, and industry employment has been essentially flat since late 2022, as high interest rates have been a drag. Private services-providing industries added 72,000 jobs in July. As has been the case throughout 2024 healthcare and social assistance (64,000 jobs added) and leisure/hospitality services (+23,000) have been leading the way. There were job losses of 20,000 information, and smaller losses in financial activities (-4,000) and professional/business services (-1,000). 

Market reaction was negative, as the soft report is raising concerns about slowing economic growth. The S&P 500 opened the day down almost 2%. The yield on the 10-year Treasury note is down by 13 basis points to 3.85%, and the yield on the 3-month Treasury bill is down 5 basis points to 5.20%. The U.S. dollar has weakened against a basket of currencies by 1%, and the price of a barrel of West Texas Intermediate crude oil has fallen more than 2% to around $74.50.

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