The likelihood of a Federal Reserve rate increase in September dropped below 50% after the latest employment report showed unexpected weakness in the U.S. labor market.
The U.S. jobs market lost momentum for the second consecutive month in July, potentially giving the Fed more justification to keep interest rates unchanged despite ongoing inflation concerns.
Data from the government’s Nonfarm Payrolls report released Friday showed that U.S. employers cut 23,000 jobs in July. The result was well below expectations for an 80,000-job increase and marked a decline from June’s revised gain of 20,000 jobs, which was previously reported at 57,000.
Employment growth for May was also revised downward, with job additions reduced to 63,000 from the earlier estimate of 129,000.
The July decline marked the first negative payroll reading since February, when the economy lost 156,000 jobs.
The unemployment rate edged lower to 4.1%, beating economists’ forecast of 4.2% and improving from June’s 4.2% level.
Markets responded immediately to the weaker labor data. U.S. stock futures moved higher, while interest rates declined. Precious metals also rallied, with gold gaining 3% on the day and silver rising nearly 6%. Bitcoin and other cryptocurrencies saw limited reaction, with BTC holding slightly above $65,000.
Other details from the jobs report showed weaker-than-expected wage growth. Average hourly earnings increased only 0.1% in July, below expectations of a 0.3% rise and June’s 0.3% increase. Year-over-year wage growth slowed to 3.2%, missing the 3.5% forecast and easing from June’s 3.4%.
Before the employment figures were released, traders were uncertain about the Fed’s next move in September. CME FedWatch data showed markets were assigning a 55% probability of another rate hike before the report. Following the weaker payroll numbers, that expectation declined to 46%.
