Source: AFP
The U.S. labor market contracted much more than expected in July with the jobless rate hitting its highest level since late 2021, government data showed on Friday, paving the way for post-pandemic interest rate cuts.
The world’s largest economy added 114,000 jobs last month, up from a revised figure of 179,000 in June, according to the Labor Department.
The unemployment rate rose to 4.3%, the highest level since October 2021, according to government data.
The report brings the Federal Reserve a step closer to its first rate cut since the Covid-19 pandemic — with the economy cooling and inflation moving toward officials’ two percent target.
While analysts have expressed concern that the US economy is fueling an early recession, Oxford Economics chief economist Ryan Sweet believes “this cycle is unique”.
Recently, unemployment has risen as more people entered the workforce. That is less of a risk that a vicious cycle of rising jobless rates will lead to a loss of income — and further job losses, he previously told AFP.
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In July, average hourly earnings rose less than analysts expected by 0.2 percent to $35.07, the Labor Department reported.
On an annual basis, the pace of wage growth slowed to a rate last seen in 2020.
Reduced momentum
“Employment continued to grow in health care, construction, and transportation and warehousing, while information lost jobs,” the Labor Department said.
He added that public employment, which has slowed in recent months, was little changed in July.
“There are signs that momentum is slowing,” KPMG chief economist Diane Swank said of public sector hiring in a recent note.
“Revenues at the state and local level are falling short of budgets this fiscal year, while subsidies from the COVID era have expired,” he added.
In addition to the downward revision to June’s hiring data, job growth in May was also slightly lower than initially estimated, according to Labor Department data.
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The latest report will likely boost the Fed’s confidence to begin cutting interest rates in September.
Although the central bank has focused on taming runaway inflation in recent years, Fed Chairman Jerome Powell said earlier that policymakers are also watching the labor market.
An unexpected weakening in the labor market could be a reason for a Fed policy response, he noted.
In a separate statement Friday, the top Democrat on the House Budget Committee, Brendan Boyle, said that while the U.S. workforce is “strong,” it’s also time for the Fed to start cutting interest rates.
Source: AFP
