U.S. Jobs Market Overview – July 2023
The jobs market in the United States experienced a significant slowdown in July 2023, adding only 114,000 jobs during the month. This figure was notably below the anticipated 175,000 jobs and represented a decrease from the previous month’s addition of 179,000 jobs, which was later revised down from an initial report of 206,000 jobs.
As a result of this job addition slowdown, the unemployment rate rose to 4.3%, an increase from June’s rate of 4.1%. This uptick in unemployment was unexpected, as analysts had forecasted that the rate would remain stable at 4.1%. The data points to a tightening labor market, raising concerns about economic growth and the potential impact on consumer spending.
Market Reactions
In the wake of the jobs report, the price of Bitcoin (BTC) remained stable, trading around $64,500, showing little change in the 24 hours leading up to the announcement. However, traditional financial markets reacted more dramatically. The 10-year Treasury yield saw a notable decline, dropping by 15 basis points to 3.83%, while the two-year yield fell by 23 basis points to 3.93%. These yields are now at their lowest levels in over a year, indicating a flight to safety among investors and a reevaluation of economic growth expectations.
- Nasdaq futures: down by 2.3%
- S&P 500: down by 1.6%
- U.S. Dollar: decreased by 0.6%
- Gold: increased by 1.3%, reaching a record high of $2,513 per ounce
Details of the Employment Report
Further analysis of the employment report reveals that average hourly earnings increased by 0.2% in July. This was below the expected 0.3% increase and also less than the 0.3% rise noted in June. On a year-over-year basis, average hourly earnings were up 3.6%, slightly missing the 3.7% forecast and down from June’s 3.8%. These figures suggest that wage growth is not keeping pace with inflation, which could impact consumer purchasing power and overall economic growth.
Additionally, average weekly hours worked also fell short of expectations, with the reported figure at 34.2 hours compared to the anticipated 34.3 hours. This decline may indicate reduced demand for labor or increased inefficiencies within the labor market.
Federal Reserve Implications
With the Federal Reserve closely monitoring labor market trends, traders have rapidly adjusted their expectations for monetary policy. Following the report, market participants have fully priced in a 25 basis point rate cut in September. However, there is now a 70% chance of a larger 50 basis point cut in September, a significant increase from just 22% one day prior. This reflects a growing belief that the economic outlook may warrant more aggressive monetary easing.
Looking ahead to the December Federal Open Market Committee (FOMC) meeting, traders are starting to position themselves for a cumulative total of 125 basis points in rate cuts by the end of the year. This is a sharp increase from the previous sentiment, which favored only 75 basis points of cuts in 2024.
Conclusion
The labor market’s recent slowdown and the subsequent market reactions underscore the challenges facing the U.S. economy. With rising unemployment and tepid wage growth, the Federal Reserve may need to consider more aggressive measures to stimulate economic activity. Investors and policymakers alike will be watching closely for further developments in the jobs market and their implications for monetary policy in the coming months.