The U.S. economy shed 23,000 jobs in July, a sharp reversal from what economists had expected, according to data released Friday by the Bureau of Labor Statistics. The Dow Jones consensus forecast had called for a gain of 83,000 jobs. Instead, the report showed the second consecutive month of payroll declines, following a downwardly revised loss of 20,000 jobs in June.
CNBC reported the full details of the Bureau of Labor Statistics release. The drop was led by a 50,000 decline in local government education and a loss of 40,000 jobs in leisure and hospitality, which analysts attributed in part to the end of the World Cup tournament. Retail lost 19,000 positions, and financial activities fell by 14,000. Healthcare added 22,000 jobs, but that was below its 12-month average of 36,000. Construction also gained 22,000.
Private payrolls did increase by 30,000 for the month, but government employment fell by 53,000, pulling the overall number negative. The final count for May was also revised down to 63,000, which was 66,000 lower than the previous estimate. Those revisions pushed the 12-month average for job gains down to just 34,000.
The unemployment rate edged lower to 4.1%, but the labor force participation rate dropped further to 61.4%, its lowest level in more than five years. Economists watch participation closely because a falling rate can signal that workers are leaving the labor force rather than finding jobs. Average hourly earnings rose by just 2 cents for the month, pulling the 12-month wage growth average down to 3.2%, below the forecast of 3.5% and the lowest since May 2021.
"The July employment report solidified that the labor market is not out of the woods quite yet," said Nicole Bachaud, a labor economist at ZipRecruiter.
The report landed at a complicated moment for the Federal Reserve. Policymakers have been split in recent weeks between those who want to raise rates to bring inflation below the central bank's 2% target and those watching for cracks in the labor market. Several Fed officials had spoken in favor of a September rate hike if inflation did not ease. Last week, the Federal Open Market Committee voted 9-3 to hold its benchmark rate steady.
Following the release, traders moved quickly to price in a more cautious Fed. Odds for a September rate increase fell to 44%, while the probability of an October hike stood at 58.3%, according to the CME Group's FedWatch tool. Stock futures posted solid gains. Futures tied to the Dow Jones Industrial Average were up close to 200 points, and Treasury yields fell sharply.
"This morning's report is a game changer in the sense that all of the recent focus has been on inflation and this report highlights the risks that are embedded in the labor market as well," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
Gold prices moved sharply higher on the news. December gold futures opened at $4,298.30 per troy ounce Friday morning and climbed to $4,411.70 by 8:45 a.m. ET, according to Yahoo Finance. A weak jobs report reduces the likelihood of a near-term Fed rate hike, which tends to benefit gold since the metal pays no interest and becomes more attractive when rates are expected to stay lower. Gold is now up 27% compared to one year ago, and up 4.8% from just one week earlier.
Uncertainty in the Middle East also supported gold prices. Bloomberg reported that Iranian lawmakers said they would seek to bar U.S. and Israeli ships from the Strait of Hormuz as part of any deal to reopen the waterway, adding pressure on energy markets and keeping inflation concerns in view ahead of the Fed's September meeting.
The next Federal Open Market Committee meeting, at which policymakers could revisit the rate question, is scheduled for September.
