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The US labour market cooled more than expected in July, adding 114,000 jobs as the unemployment rate rose, strengthening the case for the Federal Reserve to cut interest rates at its September meeting.
Friday’s figure from the Bureau of Labor Statistics was well below economists’ expectations for 175,000 new positions, and the downwardly revised 179,000 jobs added the previous month.
The unemployment rate rose to 4.3 per cent, the fourth consecutive monthly increase.
Treasury yields and stock futures fell following the data release.
Traders in the futures market increased their bets on rate cuts, with between four and five reductions now priced in for this year, compared to three or four before the report.
The data comes as a stock sell-off across Europe and Asia gathered pace on Friday, prompted by growing fears about a US economic slowdown after lacklustre results from consumer and tech companies this week.
On Wednesday, the Fed held borrowing costs at a 23-year high of between 5.25 and 5.5 per cent, but chair Jay Powell said the bank could start cutting rates at its next meeting in September.
That gathering will be the last before the November presidential election.
Inflation has fallen substantially from its 2022 peak towards the Fed’s 2 per cent target, and officials are keen to avoid damaging the economy unnecessarily by waiting too long to cut rates.
Powell said he no longer needed to see evidence of a weakening labour market to feel confident that inflation was coming under control.
“I don’t now think of the labour market in its current state as a likely source of significant inflationary pressures,” he said on Wednesday. “So I would not like to see material further cooling in the labour market.”
The Fed’s goal is to pull off a so-called “soft landing”, whereby inflation falls back to target without a sharp rise in job cuts. Such a scenario has proven difficult in the past, with efforts to cool overheated economies often resulting in recessions.
Fed officials believe they are on course to avoid this outcome, but a stock sell-off on Friday, prompted in part by weak manufacturing data, suggests markets are growing nervous about a potential slowdown.
So far, companies have responded to higher interest rates by culling job vacancies instead of laying off workers. The number of job openings slowed in June, according to data this week, falling to about 8mn after peaking just above 12mn in 2022.
This is a developing story