U.S. added just 73,000 jobs in July and numbers for prior months were revised much lower

Key Concepts

• Nonfarm Payrolls: Total number of paid U.S. workers of any business, excluding the following: General government employees, farm employees, private household employees, and employees of nonprofit organizations
• Revisions: Adjustments made to previously reported economic data.
• Average Hourly Earnings: A measure of the average wage paid to hourly employees.
• Unemployment Rate: The percentage of the labor force that is unemployed.
• Labor Force Participation Rate: The percentage of the civilian noninstitutional population that is in the labor force.
• Underemployment Rate (U-6): Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
• Basis Points: A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equal to 0.01%.

July Jobs Report Analysis

• Nonfarm Payrolls: The July nonfarm payrolls increased by 187,000, which was considered a bit light. The presenter suggests it might be a "Goldilocks" scenario, requiring market observation. The 187,000 figure is the lightest rate of the year, with the last lower pace in October of the previous year at 44,000.
• Revisions: Significant downward revisions were made to previous months' data, totaling -258,000. This is considered a substantial revision.
• Average Hourly Earnings: Month-to-month average hourly earnings increased by 0.3%, as expected. Year-over-year, they increased by 3.9%, which is 0.1% higher than expected and 0.2% higher than the previous 3.7%. The previous 3.7% was the lowest year-over-year earnings rate since mid-2021.
• Hours Worked: Hours worked increased by 0.1% to 34.3, which is considered positive.
• Unemployment Rate: The unemployment rate increased by 0.1% from 4.1% to 4.2%. This is the fourth time this year the rate has been at 4.2%. The last time the rate was higher was in October 2021, at 4.5%.
• Labor Force Participation Rate: The labor force participation rate came in at 62.2%, which is 0.1% light compared to the previous month and expectations. To find a lower number, you'd have to go back to the end of 2022.
• Underemployment Rate (U-6): The underemployment rate is 7.9%, matching the rate in March. To find a higher rate, you'd have to go back to February.

Market Reaction

• Interest Rates: Interest rates are moving lower, likely due to the significant revisions and potentially the light nonfarm payrolls figure.
• Treasury Yields: The 10-year Treasury yield moved down to 4.32, compared to around 4.39 before the report and the previous week's close of 4.39. The 2-year Treasury yield is down 10 basis points after closing at its highest level since mid-June the previous day.
• Equities: Pre-opening equities are moving slightly lower but have not yet reached new lows in the Dow futures.

Perspectives and Arguments

• The jobs report provides ammunition for various viewpoints, including those who believe tariffs are harming the economy and those who want interest rates to decrease due to a weakening labor market and lack of inflation.
• One key factor of the current administration is trying to reduce the size of government. Government hiring is included in the jobs report, so lower nonfarm payrolls and revisions may be related to government roles in these numbers.

Conclusion

The July jobs report presents a mixed picture, with lighter-than-expected nonfarm payrolls offset by significant downward revisions to previous months' data. The unemployment rate increased slightly, while average hourly earnings showed a modest increase. The market reaction indicates a move towards lower interest rates, likely driven by the revisions. The report is likely to fuel existing debates about the economy, tariffs, and monetary policy.