Washington (AFP) – The US jobs market cooled much more than expected in July with unemployment reaching its highest rate since 2021, government data showed Friday, fueling calls for interest rate cuts as high levels bite. The world’s biggest economy added 114,000 jobs last month, down from June’s revised 179,000 figure, said the Department of Labor. The jobless rate rose to 4.3 percent, the highest since October 2021, according to government data.
“Today’s report shows employment is growing more gradually at a time when inflation has declined significantly,” said President Joe Biden in a statement. But former president Donald Trump’s campaign took aim at elevated costs of living and the rise in unemployment as he seeks another White House term, saying “America’s working families are hurting.” The report brings the Federal Reserve closer to its first rate cut after the pandemic — with the economy cooling and inflation moving towards officials’ two percent target. But some economists caution the central bank may have 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 after the employment report. While analysts have raised concern of the US economy triggering an early recession indicator, Oxford Economics chief US economist Ryan Sweet cautioned that “this cycle is unique.” In recent times, unemployment edged up as more people entered the labor force. This marks less of a risk that a vicious cycle of rising jobless rates leads to income loss — and further employment cuts, he told AFP.
In July, average hourly earnings rose less than analysts expected by 0.2 percent to $35.07, the Labor Department said. On a year-on-year basis, wage growth slowed to a rate last seen in 2020.
– Weak ‘across the board’ –
“Job growth was weak across the board, with small gains or losses across the economy,” said Mortgage Bankers Association chief economist Mike Fratantoni. He added that the slowing in the market was consistent with trends elsewhere such as increases in initial claims for unemployment insurance and signs of contraction in manufacturing. “Employment continued to trend up in health care, in construction, and in transportation and warehousing, while information lost jobs,” said the Labor Department. Government employment, which slowed in recent months, was little changed in July. “There are signs that momentum is waning,” said KPMG chief economist Diane Swonk about public sector hiring in a recent note.
– More aggressive cuts? –
Senator Elizabeth Warren, a leading progressive, said Fed Chair Jerome Powell “made a serious mistake not cutting interest rates” in the central bank’s most recent meeting. “The jobs data is flashing red,” she added in a social media post. Nationwide chief economist Kathy Bostjancic warned the July report’s “across-the-board weakness” feeds the view that the Fed is late to easing monetary policy. “The bond market is pricing in much more aggressive rate cuts” of at least 100 basis points by year-end, she added in a note.
Sweet told AFP that a 25 basis points cut in September “is essentially a done deal,” with chances shifting toward three instead of two cuts this year. Powell this week had “downplayed the potential” for a 50 basis point cut in September, Sweet said, unless labor market data continues to soften. But economists Carl Weinberg and Rubeela Farooqi of High Frequency Economics said in a note that even as unemployment remains historically low, “further decay will trigger alarms at the Fed about its second mandate.” They are referring to the central bank’s dual mandate of price stability and maximum employment.
Analysts will be eyeing Powell’s remarks at the Jackson Hole symposium later this month to understand his thinking about monetary policy going forward.
© 2024 AFP
