The labor market in the United States appears to be cooling down, with the possibility of the Federal Reserve (Fed) continuing to raise interest rates being low. The new non-agricultural employment data for July was slightly lower than expected for the second consecutive month, although the unemployment rate did see a slight decrease.
According to reports, 187,000 new non-agricultural jobs were created in July, falling slightly short of the market’s expectation of 200,000. This lower-than-expected figure has continued for two consecutive months. However, the unemployment rate did decrease by 0.1 percentage point to 3.5%, below the market’s expectation of 3.6%.
Looking at different industries, the service industry remains the main source of new employment. Education and healthcare, which are less sensitive to interest rates, contributed 100,000 new jobs. Wholesale and retail sales also saw a positive turnaround. However, the professional and business services sector experienced a sharp slowdown, with a decrease of 8,000 jobs in July. The hospitality and leisure industry also saw a continued slowdown, with 17,000 new jobs added in July.
Hourly wages experienced a growth of 0.4% month-on-month, surpassing market expectations of 0.3%. However, the average weekly working hours slightly decreased by 0.1 hours from the previous month, falling slightly below pre-pandemic levels. These figures may raise concerns about a potential decline in inflation.
The number of job vacancies saw a slight decrease in June, with a corresponding increase in the labor market gap. The job vacancy rate remained unchanged at 5.8%, while the number of job vacancies fell by 30,000 to 9.58 million, the lowest since May 2021. However, the labor market gap increased by 110,000 to 3.63 million as the number of unemployed individuals decreased slightly in June. This suggests that the supply and demand conditions in the labor market are gradually balancing.
Overall, the July non-farm payrolls data further confirms the weakening trend in the labor market. The new non-agricultural employment figures were lower than expected, and the weekly working hours and job vacancies also indicate a slowdown. Among the industries least sensitive to interest rates, only education and healthcare demonstrated resilience, while the professional and business services as well as the leisure and hospitality industries weakened significantly.
It is anticipated that the probability of the Fed raising interest rates in the future is low. The July employment data and the overall slowdown in the labor market decrease the need for further interest rate hikes. The pace of the Fed’s rate hikes has likely slowed down to once a quarter. While there is dissatisfaction expressed by Fed Chair Jerome Powell at the press conference, the likelihood of a consecutive interest rate hike in September is excluded. It is believed that the Fed will maintain raising interest rates once a quarter, with a potential rate hike in November. However, declining inflation and a weakening economy may reduce the possibility of future rate hikes.
Core inflation has shown a month-on-month decline, which is expected to continue due to factors such as the decrease in used car and house rents. This further diminishes the possibility of the Fed raising interest rates again in the future. The value of U.S. bonds allocation has become prominent in the medium to long term, as the bond market’s optimism for a soft landing has deteriorated to some extent.
It is important to note that there are risks associated with inflation exceeding expectations and systemic financial risks spreading.
In conclusion, the labor market in the United States is showing signs of cooling down. While the new non-agricultural employment figures were slightly lower than expected and some industries experienced a slowdown, the unemployment rate did see a slight decrease. The probability of the Fed continuing to raise interest rates is low, and the value of U.S. bond allocation is highlighted.