Job growth slowed and unemployment ticked higher than expected in July, the Labor Department reported Friday, sending US equities tumbling and increasing odds of a September interest rate cut.
Unemployment increased by 0.2% from June to 4.3% in July, marking the highest reading since October 2021. Nonfarm payrolls grew by 114,000 last month, missing analysts’ expectations of 185,000.
Stocks initially fell sharply, with the S&P 500 and Nasdaq Composite indexes losing 2.4% and 3.1%, respectively, over the day an hour after the report was released. Both indexes posted modest recoveries later in the session. The S&P 500 was trading 2.1% lower and the Nasdaq Composite was down 2.5% at time of publication.
Cryptocurrencies also saw steep declines Friday morning. Bitcoin lost more than 4%, and ether slid close to 6% in the 90 minutes following the report’s publication.
Similar to stocks, both cryptocurrencies also pared losses slightly, with bitcoin recovering to around $63,500 at time of publication. It’s still around 2.8% lower than its intraday high but up about 1% over 24 hours. Ether hovered around $3,000 at time of publication, about 1.7% higher than its intraday low.
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Friday’s report coincides with a particularly tumultuous time for US stocks, Steve Clayton, head of equity finds at Hargreaves Lansdown, said. This creates further headwinds for markets.
“The US jobs release came after sharp falls in tech stocks, a 6% drop in the Japanese market and mounting concerns over the underlying strength of the US economy,” Clayton said. “Today was not the day for more bad news to arrive, but arrive it did.”
The unemployment rate now sits above where Federal Open Market Committee members projected. In June, central bankers expected unemployment to sit between 4% and 4.1% by the end of 2024.
Read more: On the Margin Newsletter: What to make of the latest FOMC statement
The Sahm rule recession indicator is now flashing red. Established by Claudia Sahm, a former Fed economist, the Sahm rule states that the US economy is headed for a downturn when the three-month moving average of the national unemployment rate is higher than the lowest three-month moving average in the past year, by 0.5 or more. As of Friday, the figure sits at 0.53.
Sahm herself did caution on Friday that the rule may not be reliable in this post-pandemic economic environment, given that data is still being skewed by supply chain disruptions and government stimulus.
Plus, as she told Bloomberg Television Friday morning, unemployment figures could be influenced by increased immigration.
“Factors like increased labor force participation, particularly among immigrants, and the ongoing mismatch between job seekers and available positions have also contributed to the unemployment situation,” Jag Kooner, head of derivatives at Bitfinex, said. “These complexities, combined with an inverted yield curve — another recessionary signal — have created an atmosphere of uncertainty.”
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