US job growth missed expectations, with just 73,000 new jobs added in July, short of forecasts. This weak data has strengthened the case for an interest rate cut by the Federal Reserve at its next meeting in September.
The labor market contraction highlights a notable weakening in consumer and business spending, as more Americans struggle to find work. This slowdown is already affecting consumer and business confidence, making a rate cut a viable option.
The Fed’s decision to hold rates steady last month was not unanimous, but experts now believe a cut is likely. Morningstar senior economist Preston Caldwell says the weak data makes it difficult to distinguish between a decline in labor supply versus demand, increasing the likelihood of a September rate cut.
Caldwell notes that the slowdown in job growth is largely due to federal government layoffs and a slower private sector expansion. However, he remains concerned about the uncertainty surrounding jobs data.
The report also shows a slowing manufacturing backdrop amid heightened trade uncertainty, with manufacturing employment declining at a 1.2% annualized rate in the past three months. Caldwell attributes this decline to labor supply weakness, which may be offset by rising unemployment due to a decrease in labor force participation.
Despite these challenges, Caldwell suggests that falling labor force participation could mask plummeting job growth and support the idea of a weakening labor market. The Fed’s next move will likely depend on future job numbers, but with the current data, a September rate cut is increasingly seen as a possibility.
Source: https://www.morningstar.com/economy/cooling-labor-market-strengthens-case-september-interest-rate-cut