According to a report from Reuters, the U.S. economy unexpectedly shed jobs in July and previously reported job gains for the prior two months were revised sharply lower, tempering financial market expectations for an interest rate hike from the Federal Reserve next month.
While the Labor Department’s closely watched employment report on Friday showed the unemployment rate falling to 4.1% last month from 4.2% in June, that was because another 264,000 people left the labor force, pushing the participation rate to a near 5-1/2-year low of 61.4%, and hampering hiring.
Job growth, however, has a tendency to slow down during summer, a phenomenon that economists attributed to difficulties adjusting the data for seasonal fluctuations related to the timing of the end of the school year. Much of the decline in payrolls, the first in five months, was centered in local government education. There was a second straight month of job losses in the leisure and hospitality industry, attributed by economists to the fading boost from the FIFA World Cup.
Economists urged against interpreting the data as a sign of an abrupt deterioration in the labor market, with some still viewing the labor market as being in a “slow hire, slow fire” mode.
“This is the third summer in a row that we have seen unexpected weakness in the labor market,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. “Policymakers broadly see the labor market as stable.”
US payrolls revision headaches still an issue
The big revisions to previously reported changes in the US employment level came back into focus in July, a year after a historically large revision to earlier employment estimates resulted in President Donald Trump firing the Bureau of Labor Statistics commissioner and accusing her, without evidence, of tampering with the figures.
Nonfarm payrolls decreased by 23,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising 80,000 after advancing by a previously reported 57,000 in June. Estimates ranged from as low as 10,000 to as high as 140,000 jobs added.
The economy added 103,000 fewer jobs in May and June than previously estimated. Last year’s big downgrades to the two months led to President Donald Trump’s firing of the BLS commissioner, Erika McEntarfer. Trump, without offering evidence, accused McEntarfer of manipulating the data. On Friday, the Senate approved career economist Brett Matsumoto to take over as BLS commissioner.
Job growth averaged 20,000 per month over the past three months. It averaged 77,000 per month in the three months through June. Financial markets priced in a 44% chance of the U.S. central bank hiking rates in September, compared with 57% before the jobs report, according to LSEG data. The Fed last week left its benchmark overnight interest rate in the 3.50%-3.75% range.
