114,000 jobs added and unemployment rises in the US in July

The Department of Labor, through the Bureau of Labor Statistics (BLS), presented its monthly employment report, which reported a considerable drop in job creation, with 114,000 new jobs added in July. The unemployment rate also rose to 4.3%. The figures were higher than what analysts had expected.

Economists surveyed by FactSet expected 175,000 new jobs and forecast that unemployment would remain stable at 4.1%. Employers hired 179,000 people in June, according to data from the Department of Labor's Bureau of Labor Statistics.

At 4.3%, the unemployment rate now sits at its highest point since late 2021, though the figure is still historically low.

Among the good news in the Labor Department report, the number of adults working or looking for work increased by 420,000 in July, the largest increase since March.

Average hourly earnings also rose 3.6% in July from a year earlier, remaining just above the current pace of inflation but the smallest increase since May 2021.

According to analysts, this challenging labor environment could help the Federal Reserve (Fed) cut its benchmark interest rate at its next meeting in September. Just a few days ago, central bank officials decided to leave interest rates on hold, leaving them in a range between 5.25% and 5.5%.

Although job growth had slowed before July, it had remained relatively strong despite the Federal Reserve raising its federal funds rate to its highest level in 23 years.

Still, last month's disappointing numbers raise fears that the U.S. may be facing a steeper economic slowdown due to elevated borrowing costs, prompting some economists to now anticipate a more substantial rate cut in September.

“This should ensure not just a rate cut in September, but perhaps a deeper cut in September and accelerate the timeline for cuts this year and next,” said Robert Frick, corporate economist at Navy Federal Credit Union, in an email Friday.

Fears of a recession shook the markets on Friday, with stocks falling since Thursday. The Dow Jones fell 904 points, or 2.2%, in the afternoon trading session. At the same time, the S&P 500 lost 2.5% and the Nasdaq Composite fell 2.9% in the same period. At one point during the day, the Nasdaq fell more than 3%, recovering in the last few minutes.

“The soft landing narrative is now shifting to concerns about a soft landing. “hard landing”, wrote Lara Castleton, director of portfolio construction and U.S. strategy at Janus Henderson Investors, in an email.