July employment: That was Sahm jobs reports
|Summary
The ongoing deterioration in the jobs market was on full display in the July Employment report. Nonfarm payrolls posted the second smallest gain in 3.5 years with an increase of 114K, average hourly earnings growth eased to 3.6% year-over-year and the unemployment rate jumped to 4.3% from 4.1% in June. The landfall of Hurricane Beryl at the start of the survey week looks to have had no significant impact on the change in payrolls or the increase in the unemployment rate.
The increase in the unemployment rate now puts it over the 0.5 point Sahm Rule threshold that has historically been associated with the economy being in a recession. The rise in unemployment due to labor force entrants over the past year suggests the current increase may not be the sure-fire sign of a downturn it has been in the past. However, the significant rise in job losers over the past year underscores genuine weakening in labor market conditions that are quickly raising the risk of recession. We expect the Fed to begin reducing its policy rate in September as a result, with the possibility of a 50 bps cut at least on the table after today's report.
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