The US employment report was a major disappointment in July, led by a decline in the nonfarm payrolls (NFP) report. The unemployment rate fell slightly, while wage growth weakened.
US Economy Sheds 23 Thousand Jobs
US nonfarm payrolls fell by 23 thousand, well below the market estimate of a gain of 80 thousand and much weaker than the downwardly revised June figure of 20 thousand. There was more bad news as the combined revisions for May and June indicated that employment was 103 thousand lower than previously reported.
The unemployment rate eased slightly to 4.1%, down from 4.2% in May, which was also the market estimate. Wage growth fell to 3.2% year-on-year, down from a downwardly revised 3.4% in June and below the market estimate of 3.5%.
The decline in NFP and the decrease in wage growth are warning signs of widening cracks in the labor market. Today’s NFP report marks the second decline in job growth in just five months. Employers are showing more caution about hiring, due to uncertainty over US tariff policy and the ongoing war with Iran.
Markets Eye September Fed meeting
Today’s weak jobs report has raised the probability of another hold by the Federal Reserve, which hasn’t changed rates over the past five months. Prior to the release, the probability of a hold at the September meeting stood at 45%, with a 55% chance of a rate hike. That has now changed to a 58% likelihood of a hold and a 42% chance of a rate hike, according to CME’s FedWatch.
The Fed finds itself in an awkward spot, as the labor market is showing signs of fatigue while inflation has been stubbornly high due to rising oil prices and is running at 3.5%, well above the Fed’s target of 2%. Fed Chair Kevin Warsh favors lowering rates, but he’ll need inflation to move lower before being able to deliver a rate cut. The war in Iran continues to fuel higher energy prices and there’s little chance of inflation easing significantly until the conflict in the Persian Gulf is resolved.
US Dollar Lower Across the Board, Stock Market Posts Gains
The US Dollar has responded with losses against all the major currencies on Friday, following the employment report. The USD/JPY currency pair leads the way, as the yen has strengthened by 0.66%, trading at 157.40. EUR/USD is up 0.39%, trading at 1.5695.
The US stock market, which has just opened, is in positive territory.
The Nasdaq 100 Index has posted sharp gains of close to 5% over the past five days. The positive trend has continued on Friday, with gains of 274 points (0.93%), as the index is at 29,647.
The S&P 500 Index is up 23 points (0.36%), with the index at 7738.
Kenny Fisher is a Forex Market Analyst at DailyForex with more than a decade of experience covering currencies, global stock markets, and commodities through a fundamental and macroeconomic lens. He specializes in news-driven market analysis, focusing on central bank decisions, economic data releases, and geopolitical developments that move major currency pairs and risk assets. Combining a legal editing background with financial expertise, Kenny produces clear, timely commentary that explains how headlines translate into trading implications.
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