US July Payrolls Miss Expectations, Market Pricing in 50-bp Cut in September 

Nonfarm payrolls increased by 114,000 jobs in July and the unemployment rate rose to 4.3% from 4.1%, the highest since October 2021, the U.S. Labor Department reported Friday. 

The report was below consensus expectations of 175,000 and a decline from the downward revised June print of 206,000, now revised to just 179,000. This was the lowest print since December 2020. 

The previous months were revised lower, with May revised down by 2,000 to 216,000. With these revisions, employment in May and June combined is 29,000 lower than previously reported.

The market has seen a notable shift in rate-cut expectations, now betting that the Federal Reserve will start easing policy in September with a 50-basis point reduction, versus what was seen before the report as a 70% chance of a quarter-point cut. 

“This is what a growth scare looks like,” Wasif Latif, president and CIO at Sarmaya Partners, told Reuters. “The market is now realizing that the economy is indeed slowing. Unemployment is an auto-correlation number. So, once it starts moving in a certain direction, it generally continues to move in that direction for some successive data points. I think the market is also quickly realizing the Fed may have made a mistake by not cutting.” 

The unexpected sharp rise in the jobless rate triggered the Sahm rule, which says that if unemployment, based on a three-month average, rises by at least a half percentage point over the past 12 months, the nation is probably in a recession.