The U.S. economy shed 23,000 jobs in July, and monthly job gains have been shrinking since March. The report lands as Federal Reserve Chair Kevin Warsh already faces inflation running above the central bank's target, forcing him to weigh a weakening labor market against price pressures that haven't gone away.
The U.S. economy shed 23,000 jobs in July, the Bureau of Labor Statistics reported Aug. 7, adding a new complication to Federal Reserve Chair Kevin Warsh's already difficult job. Warsh took the position in May amid persistent inflation, and until now he had focused mainly on prices while treating the labor market as resilient. This report challenges that read.
Job growth has slowed every month since March
Friday's data wasn't an isolated miss. Job gains have been falling since March, when the economy added 214,000 new jobs. Gains slowed to just 20,000 new positions in June before turning negative in July.
The unemployment rate ticked down from 4.2% to 4.1% in July. That drop comes mainly from a fall in the labor force participation rate, as fewer Americans are working or looking for work — and people who stop looking aren't counted as unemployed.
Inflation is still running above target
That labor weakness collides with an inflation problem that hasn't cleared. Headline inflation ran at 3.5% over the twelve months through June, the latest reading available. Core prices, which exclude food and energy, rose 2.6% over the same period — both above the Fed's long-term 2% target.
Prices had spiked above 9% after the COVID-19 pandemic before declining steadily in recent years. But the U.S. war on Iran, which began in late February, has pushed inflation back up in recent months.
Markets price a lower chance of a September hike
Markets initially read the jobs report as good news, because the data suggests the Fed may be less likely to raise its benchmark interest rate in the coming months. Futures markets now price a 58% chance the Fed holds rates steady at its September meeting. A week earlier, they put the odds of a rate hike at 67%.
The S&P 500 rose 0.6% in mid-morning trading Friday, hours after the jobs report landed. The Nasdaq Composite gained more than 1% over the same span.
Yet if the economy is indeed weakening, Warsh's hands may be tied, and market participants will have more than a rate decision to worry about.
Source: The Motley Fool
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