U.S. Labor Market Loses Momentum

The U.S. labor market showed further signs of cooling in July, as nonfarm payrolls rose by just 73,000, falling well short of the 101,000 expected by markets.

Substantial downward revisions to the prior two months dragged the three-month average to a mere 35,000, the lowest level recorded in five years. Although the unemployment rate remained at 4.2% as forecasted, it now stands at its highest level since November 2023, highlighting a steady softening in employment conditions.

Wage growth provided a minor silver lining, with average hourly earnings climbing 0.3% month-on-month, matching expectations. Annually, wages grew by 3.9%, slightly surpassing the projected 3.8%. However, the labor force participation rate dipped to 62.2%, marking its weakest point in three years, a sign that worker engagement in the labor market is diminishing.

Sectoral Weakness and Manufacturing Contraction Deepen

Job losses were particularly pronounced in manufacturing, government, and professional services, sectors that collectively weighed down overall employment figures. Meanwhile, healthcare and social assistance emerged as the only bright spots, posting modest gains.

The ISM Manufacturing PMI also fell to 47.8 in July, significantly below the expected 49.5, reinforcing the sector's persistent contraction and raising fresh concerns about the broader economic outlook.

Key Figures at a Glance:

• Nonfarm Payrolls: +73,000 (vs. 101,000 expected)
• Three-Month Average Payrolls: 35,000 (5-year low)
• Unemployment Rate: 4.2% (highest since Nov 2023)
• Average Hourly Earnings (MoM): +0.3% (in line with forecast)
• Average Hourly Earnings (YoY): +3.9% (vs. 3.8% expected)
• Labor Force Participation Rate: 62.2% (3-year low)
• ISM Manufacturing PMI: 47.8 (vs. 49.5 expected)

These weak figures have considerably supported market expectations for a Federal Reserve rate cut in September, as policymakers face increasing pressure to support a faltering labor market with a slowing manufacturing sector.