U.S. nonfarm payrolls fell by 23,000 in July, far short of the 80,000 gain economists had forecast, while the unemployment rate dropped to a 13-month low of 4.1%. The soft print cut the odds of a September Fed rate hike and sent the dollar index down 0.5%.
The U.S. economy shed 23,000 jobs in July, reversing expectations for a gain and catching traders positioned for a Federal Reserve rate increase off guard. June's payroll gain was also revised down, and the prior two months were cut by a combined 103,000, pulling the three-month average payroll gain to just 20,000 from 77,000 in June.
Government cutbacks drove the miss
Government payrolls contracted by 53,000, led by a sharp pullback in local government hiring. Private employers still added 30,000 positions, with health care and social assistance up 22,600 and construction up 22,000. Retail trade, financial services and leisure and hospitality all cut jobs, down 19,400, 14,000 and 40,000 respectively.
The unemployment rate fell to 4.1% from 4.2% in June, its second straight monthly decline, but the drop came because the labor force shrank by 264,000. The participation rate slipped another tick to 61.4%, its lowest since February 2021. Average hourly earnings rose 0.1% on the month, pushing the year-on-year gain to a five-year low of 3.2%.
Rate hike bets fade, dollar retreats
A Fed decision last week held its benchmark rate in the 3.50%-3.75% range, a call three committee members dissented against, preferring a quarter-point hike. After the jobs data, fed funds futures priced 40% odds of a September rate hike, down from 55% before the release.
Treasury yields fell as hike bets eased: the two-year note dropped 8 basis points to 4.16% and the ten-year fell 6 basis points to 4.61%. The dollar index slipped 0.5% to 99.43. The yen also gained, rising to 157.20 after earlier approaching 159, a level traders said could invite intervention.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, framed the report as part of a pattern: according to Reuters, "History doesn't repeat, but sometimes it rhymes." She added that slowing job growth supports a Fed hold in September.
Sources: ActionForex, Reuters via Investing.com
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