Stocks slide lower as July jobs report falls short of expectations

The July jobs report presented a mixed picture of the U.S. labor market, falling short of analyst expectations in several key areas. Nonfarm payrolls increased by 114,000, well below the consensus estimate of 175,000, and the previous month's figures were revised down from 206,000 to 179,000. Private payrolls also disappointed, rising by only 97,000 compared to the anticipated 148,000. The unemployment rate increased to 4.3%, its highest level since October 2021, above the expected 4.1%.

The results are sending equities lower as market participants fear the Fed is falling far behind the curve to cut rates. Fed Chair Jerome Powell stated that the Fed would like to see more data points before moving forward with a rate cut. The central bank will receive two jobs numbers, two CPI numbers, and a PCE data point in between meetings. This figure will certainly grab their attention. We would note that Austan Goolsbee is set to speak on Bloomberg TV at Noon. We would expect to see Fed members strike a more dovish tune to help ease market worries.

This weaker-than-expected job growth has had significant implications for market expectations regarding Federal Reserve actions. Traders are now forecasting a 90% chance of a half-point rate cut in September, and increased expectations for rate cuts totaling 111 basis points in 2024. This shift in sentiment reflects growing concerns about an economic slowdown, as evidenced by the disappointing payroll numbers and higher unemployment rate.

Sector performance varied, with health care, construction, and transportation and warehousing continuing to add jobs. Health care added 55,000 jobs, with significant gains in home health care services, hospitals, and nursing facilities. Construction employment increased by 25,000, driven by gains in specialty trade contractors. Transportation and warehousing saw a net increase of 14,000 jobs, although this was offset by a loss in transit and ground passenger transportation.

Notably, the information sector lost 20,000 jobs in July, continuing its struggle over the past year. Government employment saw modest growth with an addition of 17,000 jobs, though this was less than the gains seen in previous months. Other major industries, including manufacturing, retail trade, and financial activities, showed little change in employment levels for the month.

Average hourly earnings increased by 0.2% month-over-month, below the expected 0.3%, and by 3.6% year-over-year, slightly under the consensus of 3.7%. The average workweek for all employees edged down by 0.1 hour to 34.2 hours, indicating a potential softening in labor demand. These figures suggest a slowing momentum in wage growth and working hours, which could impact consumer spending and overall economic activity.

Revisions to prior months' data further underscored the weakening trend. The May nonfarm payroll figure was revised down by 2,000 to 216,000, and June's figure was revised down by 27,000 to 179,000. These adjustments resulted in a combined reduction of 29,000 jobs from previous estimates, reinforcing the narrative of a slowing labor market.

In summary, the July jobs report has intensified concerns about an economic slowdown, leading to increased expectations for Federal Reserve rate cuts. The report showed mixed sector performance, weaker-than-expected job growth, and higher unemployment. These developments, along with downward revisions to previous months' data, highlight the challenges facing the U.S. labor market and broader economy as we head into the latter part of the year.