A summer hiring slump affected the US labour market in July as the economy unexpectedly lost 23,000 jobs, according to new data released Friday by the Bureau of Labour Statistics. The unemployment rate decreased to 4.1% from 4.2%, attributed to an increase in the number of individuals exiting the labour force. July’s job gains reflected a notable deceleration compared to June’s figures, which were revised downward to 20,000 from the previously reported 57,000. After revisions, the number of jobs created in May was effectively reduced by half, decreasing to 66,000 from 129,000. Workers’ pay gains have decelerated to a five-year low. The July report significantly underperformed relative to economists’ forecasts, which anticipated a gain of 95,000 jobs. It is often advised that a single month does not establish a trend, and preliminary economic data observations are seldom straightforward—particularly in the aftermath of the pandemic and during times of significant uncertainty. However, when considering the nuances in July’s report (more on that below) and placing it within the context of recent months’ data, the labour market continues to exhibit low momentum, unevenness, and a situation where pay growth fails to keep pace with the accelerating prices. “This was a bleak report, and it signals the labor market is stalling again,” Heather Long told. “You can explain away a few things for July and a few things for June; but if you step back and look at the bigger picture, the past three months have seen 20,000 average job gains – no matter how you look at it, that’s anemic.”
Friday’s report contributes to the evidence that employers are exercising increased caution in their hiring practices as they contend with various challenges, including an ageing population, the swift integration of AI technologies, rising oil prices, policy ambiguity, and the ongoing conflict with Iran. The job market has been firmly entrenched in a “low-hire, low-fire” dynamic, resulting in limited opportunities for job seekers. “Price volatility may be contributing to increased hesitation from employers,” Nicole Bachaud wrote in a note Friday. “With job opportunities remaining scarce, more workers are exiting the labor market entirely.” The current hiring trends are not broadly distributed, with the majority of new jobs emerging from a single sector: healthcare and social assistance. Last month, that sector experienced a notable increase, contributing an estimated 22,600 jobs to the economy. “Healthcare has just been a printing press of jobs,” Tom Porcelli told in an interview. “But if you strip that out from private (employment, which was up 30,000 jobs in July), the cyclical hiring was only +7,000 jobs. The backdrop is still incredibly uneven.” In addition to healthcare, job growth was observed in construction and certain manufacturing sectors, which have reaped the rewards of increased capital expenditure in AI and the expansion of data centers. Sectors such as professional and business services added 18,000 jobs, while the tech-dominant information sector saw an increase of 11,000 jobs. However, those gains were negated by significant losses in local government, particularly in local schools, as well as in the leisure and hospitality sectors.
The World Cup was anticipated to provide a significant boost to the leisure and hospitality sectors, as fans flocked to sports bars nationwide and occupied hotels in the host cities. In June and July, the leisure and hospitality sector experienced a decline of 43,000 jobs and 40,000 jobs, respectively, according to data from the Bureau of Labour Statistics. “It’s difficult for me to believe that we’ve lost 83,000 jobs over the last two months in leisure and hospitality services, given that the World Cup has been going on,” Gus Faucher said in an interview. “But that’s a very seasonal industry where we tend to see more hiring during the summer, and it could be that seasonal adjustment factors are off for some reason and are not picking up what’s truly reflected in the labor market.” Faucher is discussing the statistical methodology designed to mitigate seasonal fluctuations, thereby facilitating a clearer observation of fundamental trends. However, that methodology presents certain peculiarities: For instance, if hiring activity fails to align with historical patterns (such as increases in summer hiring at restaurants and hotels), it may be interpreted as job losses. The 57,000-job decline in the local government sector, specifically the 49,600 jobs from local school districts, is best interpreted as “an artefact of seasonal adjustments rather than a genuine loss of jobs,” according to Jason Pride. “A summer release (of district workers) running about 5% larger than the historical norm produces a 50,000-job adjusted decline out of a million-job gross swing,” he wrote in a note Friday. “Distortions of this kind typically reverse as districts staff up for the new school year.”
In addition to the seasonal adjustment anomalies, changes in hiring patterns are also expected to play a role in the observed volatility, according to ADP’s chief economist Nela Richardson earlier this week. Elevated levels of macroeconomic uncertainty have led to a labour market characterised by intermittent hiring patterns. Additionally, due to significant structural changes, particularly an ageing demographic and a deceleration in immigration, the economy no longer requires the same level of job creation as it previously did. However, even considering the potential anomalies associated with the back-end seasonal adjustments, a distinct trend emerges: aside from the healthcare sector, hiring across the majority of industries is experiencing a slowdown, Long stated. It is a labour market that benefits certain segments while leaving others behind. Wage growth experienced a stagnation in July, with average hourly earnings increasing by a mere 0.1% compared to June. This development has resulted in the annual growth rate declining to 3.2%, marking a five-year low. Workers’ pay cheques, on average, are being completely consumed by inflation, which registered at 3.5% in the most recent Consumer Price Index. “You don’t need a PhD in economics to see that the financial squeeze is real for Americans right now, and I think the second half of this year will be belt-tightening for many families,” Long said. The weaker wage dynamic picture could benefit the Federal Reserve, which aims to bring inflation back to 2%, according to Wells Fargo’s Porcelli.
The current job market does not favour demand-driven inflation, he stated. Given that many issues with inflation are currently stemming from the supply side, the probable course of action suggests that the Fed will maintain its current stance, he added. US stocks experienced an uptick on Friday following the report, while Treasury yields declined as the probability of a Federal Reserve rate hike at the September meeting decreased to 40%, down from 55% the previous day, as indicated by CME FedWatch. The latest inflation data is set to be released next week, commencing with the Consumer Price Index on Wednesday morning. Lower petrol prices, which were down on average compared to June, likely contributed to maintaining inflation at a modest 3.4%, a slight decrease from 3.5%, as noted by EY-Parthenon economists in a report on Friday. However, with inflation at 3.4%, a recent period of sluggish job growth, and a persistently uncertain economic landscape, it is unlikely that Americans will find much relief regarding their affordability issues, as noted by Navy Federal’s Long. “Americans feel stuck right now,” she said. “You’re not going to move with the mortgage rate at almost 7%. You’re not going to get a new job with hiring this anemic. People are holding on to their cars longer; they’re even holding on to their cell phones longer.” And “It’s this stuck feeling, and that’s not the dynamic American economy people want,” she said.