The U.S. economy lost 23,000 new jobs in July, defying economists' forecasts for continued hiring growth.
The U.S. economy experienced a dramatic reversal in July, unexpectedly losing 23,000 jobs, although the national unemployment rate edged down slightly to 4.1%.
The latest report from the Bureau of Labor Statistics released Friday revealed that nonfarm payroll shrank, even as most economists expected to see steady hiring growth in the 80,000-90,000 range.
This surprise contraction makes it less likely that the Federal Reserve will increase the federal funds rate in the near term. Under its dual mandate to promote maximum employment and stable prices, the central bank typically raises rates to curb inflation and lowers them to stimulate hiring.
Economy saw the steepest declines in employment in local government education (-50,000), retail trade (-19,000), and financial services (-14,000), which led the downward trend in July.
Meanwhile, the health care sector continued expanding, but at a slower pace than before, adding 22,000 payrolls last month.
Employment showed little or no change over the month in mining, construction, transportation, and hospitality industries.
Additionally, May and June were revised down by a combined 103,000 jobs. May was revised from 129,000 to 63,000 payrolls, while June was revised down from 57,000 to 20,000 jobs.
Average hourly earnings rose just 3.2% year over year in July, below the anticipated 3.5% and the slowest annual pace in five years.
"Consumer price inflation is running faster, so wage gains are wiped out at gas stations and grocery stores," says National Association of Realtors® Chief Economist Lawrence Yun. "The wage gain is still outpacing home price growth, as has been the case for the past 18 months."
According to Yun, what is concerning is that the labor market is losing steam, as evidenced by weak hiring despite the low unemployment rate.
"With the southern border crossings effectively shut down and legal immigration at near historic lows, more Americans need to step into the job market," he argues. "Yet labor force participation has been falling and has hit a new low in modern times (aside from the few months during the COVID lockdown). Sadly, too many Americans are not even searching for a job."
What this means for the housing market
The Federal Reserve led by Chair Kevin Warsh is not expected to hold interest rates steady in September. Realtor.com® senior economist Jake Krimmel says July's disappointing jobs report marginally complicates the Fed's calculus.
CME's FedWatch tool, which had priced in a 55% chance of a hike before the report, flipped to a 55.9% chance of a hold at the September meeting of the Federal Open Market Committee (FOMC) after the release.
"However, today’s job print likely just pushes out the timeline on rate hikes rather than bolstering the case for cuts," notes Krimmel. "Inflation remains the key indicator for the Fed and the bond market, and by extension for housing. And next week’s CPI inflation print will also serve to put today’s weak wage growth number in context for consumers."
The U.S. housing market had a calmer July than the labor market, though Krimmel points to signs of a summer slowdown as well. The Realtor.com July housing report showed a market on cruise control, even against the headwinds of rising mid-to-late-summer mortgage rates and renewed economic uncertainty.
Sellers kept pricing more realistically, pending sales continued to beat last year's pace, and homes spent a day less on market than they did a year ago.
"Friday's messy jobs print doesn't change that story, but it does underscore that labor market momentum, on average, isn't providing any outsized added support to housing demand right now," concludes the economist.