Job losses in July, Negative Revisions Show a Weakening Labor Market

The U.S. economy lost 23,000 jobs in July, which NBC News said was a sign that the labor market has not stabilized after four months of positive growth.

Economists surveyed by Dow Jones were expecting the report to show 83,000 added jobs, more than June’s 57,000. NBC noted that the unemployment rate dropped slightly to 4.1%.

First American Senior Economist Sam Williamson said a summer slowdown for the labor market may offer some hope for mortgage rate relief.

“The July jobs report points to a labor market that is clearly losing momentum, even if seasonal weakness likely exaggerated the headline decline. For the Fed, softer hiring tilts the balance away from further tightening, which could help keep mortgage rates in check and provide some modest relief for prospective home buyers,” Williamson said.

NBC noted that in another troubling sign for the labor market, the Bureau of Labor Statistics said that it revised down the prior two months by a combined 103,000. The Bureau said thatMay’s jobs total was cut by 66,000 to 129,000 total jobs added, while June’s total was lowered by 37,000 to a total gain of 57,000.

Complicated Economic Backdrop

The hiring data comes against a complicated economic backdrop, NBC said.

The war with Iran continues without any kind of agreement to fully reopen the Strait of Hormuz, it noted Energy prices are still elevated, even if they are off their highest levels of the year.

The change in workers’ average hourly earnings also fell well short of economists’ expectations, NBC said. Wage growth was 0.1% from June, or 3.2% from one year ago. That’s also below inflation, which was 3.5% in its most recent reading.

“That’s the number that many Americans are focused on right now,” Heather Long, Chief Economist at Navy Federal Credit Union, told NBC News. Long pointed out that 3.2% was the lowest wage growth has been in five years. “At the same time, inflation is heating back up again.”

Economists had been expecting wages to continue pacing at 3.5% from a year ago.

“The labor market is stalling again,” Long said, also calling the report “bleak.”

Long pointed to another troubling data point: The labor force participation rate in July was the lowest since February 2021, a sign that workers are dropping out of the workforce.

“It’s pretty shocking,” she said. “Over 2 million people have left the labor force since November.”

Losing Momentum

“The magnitude of the payroll miss suggests the labor market may be losing momentum and can no longer be considered the pillar of strength,” said Allianz investment strategist Charlie Ripley.

First American’s Williamson said that, “Much of July’s weakness was concentrated in government education, where payrolls fell sharply at the end of the school year, which likely exaggerated the headline decline. Even so, the recent trends make clear that the labor market has lost some of its recent momentum.”

Williamson noted that the cooling also shifts the balance of risks for the Federal Reserve.

“Higher energy prices have recently revived concerns about inflation and raised the possibility of additional rate hikes later this year. A weaker jobs backdrop, though, shifts that calculation by giving policymakers more reason to weigh signs of labor-market softness alongside inflation risks, lowering the odds of further tightening,” Williamson said.

“For prospective home buyers, that could offer some relief. A lower risk of additional Fed tightening could help keep a lid on longer-term interest rates and mortgage rates, easing some pressure on affordability,” Williamson noted. “Slower hiring can also weigh on job mobility and consumer confidence, so the housing benefit is likely to be modest. Still, a cooler labor market that takes some pressure off borrowing costs would be a better backdrop for buyers than another leg higher in mortgage rates.”