According to the U.S. Labor Department’s report on Friday, nonfarm payrolls saw a modest increase of 114,000 jobs in July while the unemployment rate rose from 4.1% to 4.3%, reaching its highest level since October 2021.
This figure fell short of expectations as analysts had predicted a gain of around 175,000 jobs and was also lower than June’s revised number of just 179,000 (previously reported as an increase of206,000). This marks the lowest job growth seen since December2020.
Furthermore,the numbers for May and June were also revised downwards by a totalof29 ,00jobs compared to previous reports.
As a result,this has caused market sentimentto shift towardsexpectingthe Federal Reserve to implementa more aggressive approachin September witha50-basis point reduction,rather thanthe previously anticipated quarter-point cut.This change is being attributedto what Wasif Latif,presidentand CIO at Sarmaya Partners,calls “agrowth scare”, where investors are realizing that theeconomyis indeedslowing down.Healso points outthatunemployment figures tend tomaintain their trend once they start moving in one direction over several data points.This realization has led some experts to question whether or not the Fed made amistakeby not cutting rates earlier.
The unexpected rise in unemploymenthas triggeredwhat is known asthe Sahm rule.Accordingto thisrule,a significantincreaseinunemploymentoverthepast12monthsindicates that there may be arecession looming ahead based on athree-month average.Thisis somethingthat will need further monitoringas we move forward.
