Employers added 114,000 jobs in July, far fewer than expected

Hiring abruptly slowed in July as employers added 114,000 jobs, far fewer than economists had expected, while the unemployment rate jumped to 4.3%. The substantial miss all but guarantees the Federal Reserve will cut its benchmark rate at its September meeting, experts said.

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

While job growth had been slowing prior to July, it had remained relatively strong despite the Fed pushing its federal funds rate to its highest point in 23 years. Still, last month's disappointing figures raise concerns the U.S. could be facing a sharper economic slowdown due to elevated borrowing costs, prompting some economists to now anticipate a more substantial rate cut in September.

"This should lock in not only a September rate cut, but perhaps a deeper cut in September and accelerate the schedule of cuts this year and next," said Robert Frick, corporate economist with Navy Federal Credit Union, in a Friday email.

The Fed could cut rates by 0.5 percentage points in September, or double the 0.25 percentage point cut expected prior to Friday's jobs report, according to Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson Investors.

"The soft landing narrative is now shifting to worries about a hard landing," Castleton wrote in an email.

On Wednesday, the Fed left its benchmark interest rate unchanged, as expected, but Chair Jerome Powell signaled the central bank could begin cutting borrowing costs in September so long as inflation continues to abate. Job growth has slowed in the last several months, which Powell described as healthy, yet he added officials were closely monitoring the labor market for signs of weakness.

Stocks tumbled on Friday, continuing a downturn that began on Thursday , sparked by a larger-than-expected jump in weekly jobless claims that raised concerns about future growth. The Dow Jones Industrial Average dipped 1.2%, while the S&P 500 shed 1.5% and the tech-heavy Nasdaq lost 2.3%.

"This was a 'bad news is bad news' report for the market and will continue the growth scare that has been roiling equities lately," Castleton said.

Jump in unemployment

At 4.3%, the unemployment rate now stands at its highest point since late 2021, although the figure remains a historically low.

July's jump in unemployment is due to more workers entering the labor force than exiting it, with the labor force participation rate for people between 25 to 54 rising to its highest level since 2001, noted Josh Jamner, investment strategy analyst at ClearBridge Investments.

A jump in the labor force can boost the jobless rate if not all those workers find jobs.

"There was some good news from the employer survey, as the labor force — the number of adults working or looking for work — rose by a strong 420,000 in July, the biggest increase since March," noted PNC chief economist Gus Faucher, in a Friday email.

Average hourly earnings were up 3.6% in July from a year ago, staying just ahead of the current pace of inflation yet the smallest increase since May 2021.