Key takeaways
U.S. job growth slowed, and unemployment ticked higher in July.
The economy created only 114,000 new jobs in July, which is the second lowest monthly gain in more than four years.
Additionally, June’s job growth was revised lower.
The U.S. job market showed signs of weakness in July, with the growth of new jobs slowing and the unemployment rate ticking higher. In addition, Americans filing new unemployment claims also rose at the end of the month. In early August, investors appeared to read this flurry of softer labor market data as an economy warning sign, with equity markets suffering significant declines.
The latest jobs data arrived just after the Federal Reserve voted to hold interest rates steady, maintaining the fed funds target rate at a range of 5.25% to 5.50%, the same level as the past year. The Fed indicated that the door was open to an interest rate cut at its next meeting in mid-September. Investors initial reaction in the wake of jobs data released in early August indicates a fear that the Fed waited too long to initiate rate cuts.
The U.S. Bureau of Labor Statistics reported that the economy created only 114,000 new jobs in July, the second lowest monthly gain in more than four years (behind April 2024when only 108,000 jobs were created). In addition, the labor department revised lower June’s impressive job growth figure. What was initially reported as a 206,000 job gain in June was revised to 179,000. 1
While job growth slowed, the nation’s unemployment rate rose to 4.3%, its highest level since October 2021. 2 “The market’s worry with the unemployment rate is that historically, once it begins rising, it tends to keep rising,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “Still, when taking a more historical view of the unemployment rate, a number in the low 4% range is still quite favorable.”
Over 2024’s first seven months, non-farm payrolls grew by an average of 202,714 jobs per month, continuing a downward trend since the economy began to emerge from the COVID-19 outbreak in the early 2020s. 3 The slowdown in job growth is even more evident in the most recent three months of jobs data, where monthly job gains averaged less than 170,000.
Source: U.S. Bureau of Labor Statistics as of July 31, 2024..
Source: U.S. Bureau of Labor Statistics as of July 31, 2024.
The number of open positions compared to available workers, which was significantly imbalanced, with far more jobs than workers, recently leveled off. At the end of June 2024, according to the U.S. Bureau of Labor Statistics, there were 8.2 million job openings in the U.S., compared to 7.2 million unemployed persons. 4 The number of job openings trended lower in 2024 but stabilized in recent months. “Today’s imbalance still favors workers, and that helped keep wage pressures elevated,” says Haworth.
“Improving labor participation is one way to address the tightness in the labor market that’s propping up wage gains,”
Matt Schoeppner, senior economist at U.S. Bank.
One measure economists watch to forecast potential changes in labor market trends is the weekly new jobless claims report. In the most recent report, initial jobless claims stood at 249,000 for the week ending July 27. 5 It marked 2024’s highest weekly jobless claims level, though the number is subject to significant fluctuation on a week-to-week basis. “If you look at long-term history, sub-300,000 initial weekly jobless claims is considered a fairly healthy level for the economy,” says Haworth. “At the same time, recent reports show people aren’t leaving jobs at the rate they once were. That’s an early signal of a slightly softer labor market.”
July’s labor force participation rate, representing the percentage of the population currently in the workforce, was 62.7%, 1 generally consistent with the rate throughout 2024. Labor force participation is considered a key barometer of the broader economy’s health. The labor force participation rate was slightly higher, at 62.8%, between August and November 2023. 3 “Improving labor participation is one way to address tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, a senior economist at U.S. Bank.
The recent labor market slowdown occurred despite continued U.S. economic resilience. The nation’s Gross Domestic Product (GDP), grew at an annualized rate of 2.8% in 2024’s second quarter, double the first quarter’s GDP growth. However, the economy is expected to slow from 2023’s 2.5% growth pace. 6 Inflation, which was stuck at a 3%+ annual level for more than a year (based on the Consumer Price Index) trended lower in recent months, down to 3% for the 12 months ending in June. 3
Haworth notes that the Fed is closely monitoring average monthly wage growth, which dropped to 3.6% for the 12 months ending in July, down considerably from wage growth levels in recent years. 1 “This is a key measure that may give the Fed more confidence that inflation is moving in the right direction,” says Haworth.
Source: U.S. Bureau of Labor Statistics. *As of July 31, 2024..
Fed Chair Jerome Powell, after the FOMC’s July meeting, said “conditions in the labor market have returned to about where they stood on the eve of the (COVID-19) pandemic (in 2020) – strong, but not overheated.” Powell added, “If the labor market were to weaken unexpectedly or inflation were to retreat slower than anticipated, we are prepared to respond.” 7 That appeared to open the door to potential Fed interest rate cuts in the coming months, particularly given the most recent jobs report.
Investors continue to closely follow jobs data for signs of a more significant slowdown, which could provide the Fed with the impetus to begin cutting interest rates. Lower rates are considered a way to provide a boost to the economy, which would likely help extend the stock market rally that began in 2023, and also boost the bond market.
Talk with a wealth professional if you have questions about your personal financial circumstances or investment portfolio.
The job market refers to the marketplace where individuals seek work and employers seek workers. The strength of the job market is considered one important measure of the current health of the broader economy. If more jobs are being created and demand for labor is high, it tends to reaffirm the presence of an expanding economy. By contrast, higher unemployment levels and low job growth (or a decline in job growth) indicate a slowing economy.
The unemployment rate, reported monthly by the U.S. Bureau of Labor Statistics, provides significant insight into the health of the nation’s economy. Generally, the lower the unemployment rate, the stronger the economy is likely to be. The unemployment rate is also one of the mostly closely followed indicators. It’s important to note that the unemployment rate reflects people who are out of work but still seeking employment. It does not reflect others who have stopped looking for work or consider themselves no longer in the labor force.
When the unemployment rate moves higher, it indicates potential weakening of the economy. Consumers may consider holding back on purchases if they have concerns that they, themselves, could face unemployment in the near future. If that occurs, it can potentially contribute to further economic weakness. When unemployment is low, it’s a good indicator that the economy is strong and expanding.
The Federal Reserve is focused on fighting inflation with monetary policy intended to slow consumer demand. Does this put the economy at risk of a recession?
With inflation retreating and likely interest rate cuts coming soon, how should investors position their portfolios to capitalize on potential opportunities, while guarding against risks?
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