- US creates 114,000 new jobs in July
- Wages rise by 0.2%
- Unemployment rate jumps to 4.3%
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“The US jobs release came after sharp falls in tech stocks, a 6% drop in the Japanese market and mounting concerns over the underlying strength of the US economy. Today was not the day for more bad news to arrive, but arrive it did, in the form of non-farm payrolls data far below market expectations.
The data shows that the US economy continues to grow, but at a far slower pace than expected just a matter of weeks ago. It all adds to mounting evidence that the engine room of the global economy is weakening.
Going into the data, markets were expecting to see payrolls rise by around 175,000 in July, with wage growth slowing to 3.7%, which would have been a three-year low. Unemployment was seen holding at 4.1%, a little higher than a year ago but still far below its pandemic peak of over 10%. Nothing is ever straightforward though, and July’s data will have been impacted to some degree by the arrival of Hurricane Beryl on the 8 July, impacting economic activity across a large swathe of the Southern USA. In the event, the numbers were far below consensus and even below low-end forecasters, such as the Bloomberg economics team who had been calling for around 140,000 new jobs to be reported.
Recent days have seen US Treasury bond yields tumbling, as investors grew concerned that the Fed had been slow to react to signs of weakening in the US labour market. Without significant rate cuts, (space) it was argued the US risked slipping toward recession, with a hard landing more likely the longer it took the Fed to begin cutting. Just before the release, US futures were suggesting that Wall Street would open around 1.1% weaker, following disappointing earnings releases from Amazon and Intel, followed by a 6% slump in Japan’s stock markets overnight. Immediately after the jobs release, they were implying a larger fall of around 1.6%. Federal Reserve Chair, Jay Powell, said earlier this week that the Fed was likely on course to cut rates in September, with markets pricing in a cut of 25 points as pretty much a given. This jobs report will only heighten speculation that the Fed could move by more than 25bps when it meets in September and follow on with further cuts through to year end.
Treasuries surged on the news, with US 2-year bond yields tumbling by around 20bps, with significant falls in yield at the longer end of the curve too. The dollar reacted weakly to the news, as traders factored in lower returns from holding the Greenback in future if rates are going to fall faster and further. Currently the dollar is trading around $1.275 versus the pound.”
