US unemploment rate surges to highest in nearly three years

August 02, 2024 (MLN): US hiring slowed markedly in July and the unemployment rate rose to the highest level in nearly three years, suggesting a faster deterioration in the labor market than previously thought and putting the Federal Reserve solidly on a path to cutting interest rates in September, as reported by Bloomberg.

Nonfarm payrolls rose by 114,000 last month after downward revisions to prior two months, the Bureau of Labor Statistics said Friday.

That was lower than all but one forecast in a Bloomberg survey of economists and one of the weakest prints since the pandemic.

Average hourly earnings also came in below forecast.

The unemployment rate unexpected climbed for a fourth month to 4.3%. That reflected more people losing and leaving their jobs, rather than new workers entering the labor force.

However, people who had previously worked did come back, which helped drive up participation.

The jobs report adds to a week of disappointing data that raise concerns of a more abrupt downshift in the economy, prompting a stock market sell-off and pushing down Treasury yields.

The figures may give Fed officials some reason to believe that their policies are cooling the labor market too much rather than reverting to its healthy pre-pandemic trend.

Chair Jerome Powell spoke Wednesday after the central bank held interest rates at a two-decade high, saying officials are now more focused on the other side of their dual mandate and want to prevent undue harm to the labor market since inflation has largely come down from its pandemic peak.

He also indicated policymakers are on course to start lowering borrowing costs as soon as September. Traders are close to pricing in a half-point rate cut at that meeting.

“This environment just means accelerating cuts,” said Derek Tang, economist with LH Meyer/Monetary Policy Analytics. “The Fed was already leaning to recession avoidance, or what they call sustaining the expansion. With this report, it will become even more lopsided, with inflation upside risk relegated to a near memory.”

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