The U.S. economy took an unexpected hit in July as job growth stalled and unemployment climbed to its highest level in nearly three years, raising fresh concerns about an impending economic slowdown.
In a troubling sign for the U.S. economy, job growth slowed significantly in July, with the unemployment rate rising unexpectedly, according to the Labor Department's report released Friday.
Nonfarm payrolls increased by only 114,000 for the month, a sharp decline from June's downwardly revised figure of 179,000 and well below the Dow Jones estimate of 185,000. The unemployment rate ticked up to 4.3%, the highest level since October 2021.
Average hourly earnings, a key indicator of inflation, rose just 0.2% for the month and 3.6% year-over-year, both falling short of forecasts of 0.3% and 3.7%, respectively. These disappointing figures added to stock market losses, while Treasury yields dropped in response.
The U.S. labor market, once a stronghold of economic resilience, is now showing signs of strain. The July payrolls increase is well below the average of 215,000 over the past 12 months, raising concerns of a broader economic slowdown.
"Temperatures might be hot around the country, but there’s no summer heatwave for the job market,” said Becky Frankiewicz, president of the ManpowerGroup employment agency. “With across-the-board cooling, we have lost most of the gains we saw from the first quarter of the year.”
Health care continued to lead job creation, adding 55,000 positions, followed by construction with 25,000, government with 17,000, and transportation and warehousing with 14,000. Leisure and hospitality, which has been a significant job gainer in recent years, added 23,000 jobs. However, the information services sector saw a loss of 20,000 jobs.
The household survey, which also contributes to the unemployment rate, painted an even bleaker picture with only 67,000 jobs added and 352,000 more people counted as unemployed. The labor force participation rate, which measures the share of the working-age population that is either working or actively looking for work, edged up slightly to 62.7%.
These figures add to a mix of economic signals that have left financial markets uneasy about the Federal Reserve's next move. Earlier optimism about a potential interest rate cut from the Fed as early as September was dampened by Thursday's economic data showing a spike in unemployment benefit filings and further weakening in the manufacturing sector. This led to the worst sell-off of the year on Wall Street, renewing fears that the Fed might be waiting too long to lower interest rates.
The slowdown in wage growth could provide some reassurance to policymakers that inflation is easing back towards the Fed's 2% target, but the overall economic outlook remains uncertain.
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