Nonfarm payrolls increased by 114,000 jobs last month after rising by a downwardly revised 179,000 in June, the Labor said on Friday. Economists polled by Reuters had forecast payrolls advancing by 175,000 jobs after a previously reported 206,000 gain in June. Hurricane Beryl, which knocked out power in Texas and slammed parts of Louisiana during the payrolls survey week, likely contributed to the below-expectations payrolls gain.
Traders bet that the Federal Reserve will start easing policy in September with a big half-percentage-point interest rate cut, versus what was seen before the report as a 70% chance of a more usual quarter-point cut.
MARKET REACTION:
STOCKS: S&P 500 E-minis extended losses and were down 1.69% BONDS: The yield on benchmark U.S. 10-year notes tumbled to 3.835%, the two-year note yield fell to 3.945% FOREX: The dollar index extended a loss to -0.7%
COMMENTS:
MARC OSTWALD, CHIEF ECONOMIST AND GLOBAL STRATEGIST, ADM INVESTOR SERVICES INTERNATIONAL, LONDON
"It was a weak reading. There wasn't really an impact from Hurricane Beryl. You had nice increases in manufacturing, construction and retail and indeed leisure and hospitality - all of which should have been hit if it had. So you can't explain the weak reading with that. The unemployment rate rose, more due to migration than anything else because labor force participation increased, You've got two forces, one of labor demand easing, not falling off a cliff but definitely easing - and a larger labor force."
"I wouldn't say the Fed's behind the curve - you can't fine tune these things. But this essentially cements a rate cut in September, whatever we get from July CPI."
"The last thing the stock market needs right now is another definitive signal that the economy is slowing. It's good news for bonds and credit, but not for equities although there are some other factors going on there."
STUART COLE, CHIEF MACRO ECONOMIST, EQUITI CAPITAL, LONDON
"A soft number, which must leave a September cut from the Fed starting to look like a nailed-on certainty. A big miss on the headline number, a sizeable downwards revision to last month’s print, and a 2% rise in the rate of unemployment – it is no surprise that Powell has recently been highlighting concerns among some FOMC members about the dangers of delaying for too long a cut in interest rates, and then going too timidly thereafter."
"And what is potentially even more worrying for the Fed is that, whereas in the past a softer data would see equities rally on the expectation that inflation was coming down and interest rate cuts were on the horizon, the fact that equities have reacted negatively to today’s number suggests the thinking is that the Fed is already behind the curve and should have been cutting rates already. The two CPI reports to be released between now and the September Fed meeting probably now have to be pretty shocking if the Fed is going to defer cutting rates again."
MELISSA BROWN, MANAGING DIRECTOR, APPLIED RESEARCH, SIMCORP, NEW YORK
"The top line number is a little shocking relative to expectations. It's much lower than expected. But it's a positive number. It's not the lowest we've seen. The job gains could be low enough to trigger the Fed to act at the next meeting but they're not so low that the signs are flashing recession."
"The unemployment number is higher than expected and higher than its been for a while. That's a bit of a concern but it's still relatively low."
"There's still a lot of data to come out between now and the next meeting. A 50 basis-point cut is possible but given the Fed's caution, not that likely. It'll really depend on the data over the next few weeks."
"Hourly earnings was slightly below. What that means is the next inflation report will be quite important, where general inflation stands versus earnings gains,"
"To me it's a little surprising the market is reacting so badly because at the same time the likelihood of a bigger rate cut has gone up and the market tends to like that."
WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY
“This is what a growth scare looks like. The market is now realizing that the economy is indeed slowing. Unemployment is an auto-correlation number. So once it starts moving in a certain direction, it generally continues to moving that direction for some successive data points. I think the market is also quickly realizing the Fed may have made a mistake by not cutting. Historically, the Fed has been that they have tended to wait longer and end up pushing the economy into a slower zone. Obviously, they've been data dependent. But now that the data's out, they will probably do what they need to do in September. But September is a lifetime away right now for the market, which is panicking.”
“You would expect bonds to rally in this environment because of the economic slowdown, the flight to quality etc. But you're also seeing gold hitting all-time highs the because now we're at a point where the market is pricing in greater Fed cuts and I think the gold price is saying that's all well and good.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN
“If Powell knew then what he knows now, he probably would have cut rates. By keeping rates on hold while inflation fell, they’ve applied too much pressure on the brakes. The decline in hours for the manufacturing work week is not a good sign for this being just a soft patch. The Fed can’t bank on economic momentum bailing them out from being too slow to recognize how quickly things are changing.”
