Payrolls growth slowed sharply to 114,000 in July; unemployment rate rose to 4.3%

Investing.com -- The U.S. economy added significantly fewer jobs than anticipated in July, in another sign of a cooling in labor demand in the world's largest economy.

Nonfarm payrolls came in at 114,000 last month, the lowest since January 2021, down from a revised 179,000 in June, according to Labor Department data on Friday. Economists had seen the July number at 177,000. 

The June reading was revised down heavily from an initial mark of 206,000. The May reading was also revised down by 2,000, to 216,000, and with these revisions, employment in May and June combined was 29,000 lower than previously reported.

Employment continued to trend up in health care, in construction, and in transportation and warehousing, while information lost jobs.

Meanwhile, the unemployment rate rose to 4.3%, up from 4.1% in June, climbing in each of the past three months. Month-on-month average hourly wage growth came in at 0.2%, below the expected 0.3%.

Over the past 12 months, average hourly earnings have increased by 3.6 percent.

The U.S. Bureau of Labor Statistics noted that Hurricane Beryl made landfall on the central coast of Texas on July 8, but it had no discernible effect on the national employment and unemployment data for July.

Data released earlier this week showed that U.S. job openings fell modestly in June, while new applications for unemployment benefits increased to an 11-month high last week.

The Federal Reserve kept its benchmark overnight interest rate in the 5.25%-5.50% range on Wednesday, where it has been since last July, but also opened the door to reducing borrowing costs. 

In the accompanying statement the Fed softened the description of inflation and said the risks to employment were now on a par with those of rising prices.

A cooling labor market will provide the Federal Reserve with more ammunition to cut interest rates from more than two-decade highs, potentially at its September meeting.

"The sharp slowdown in payrolls in July and sharper rise in the unemployment rate makes a September interest rate cut inevitable," said analysts at Capital Economics, "and will increase speculation that the Fed will kick off its loosening cycle with a 50 bp cut or even an intra-meeting move."