Economics
Job growth totals 114,000 in July, much less than expected, as unemployment rate rises to 4.3%
Job growth in the U.S. slowed much more than expected during July and the unemployment rate ticked higher, fueling fears of a broader economic slowdown, the Labor Department reported Friday.
Nonfarm payrolls grew by just 114,000 for the month, down from the downwardly revised 179,000 in June and below the Dow Jones estimate for 185,000. The unemployment rate edged higher to 4.3%, its highest since October 2021.
Average hourly earnings, a closely watched inflation barometer, increased 0.2% for the month and 3.6% from a year ago. Both figures were below respective forecasts for 0.3% and 3.7%.
Stock market futures added to losses following the report while Treasury yields plunged.
The labor market had been a pillar of economic strength but has recently shown some trouble signs, and the July payrolls increase was well below the average of 215,000 over the past 12 months.
“Temperatures might be hot around the country, but there’s no summer heatwave for the job market,” said Becky Frankiewicz, president of the ManpowerGroup employment agency. “With across-the-board cooling, we have lost most of the gains we saw from the first quarter of the year.”
From a sector standpoint, health care again led in job creation, adding 55,000 to payrolls. Other notable gainers included construction (25,000), government (17,000), and transportation and warehousing (14,000). Leisure and hospitality, another leading gainer over the past few years, added 23,000.
The information services sector posted a loss of 20,000.
While the survey of establishments used for the headline payrolls number was discouraging, the household survey was even more so, with growth of just 67,000, while the ranks of the unemployed swelled by 352,000. The participation rate as a share of the working-age population edged higher to 62.7%.
The report adds to mixed signals recently about the economy and with financial markets on edge about how the Federal Reserve will respond.
Though markets on Wednesday cheered indications from the Fed that an interest rate cut could come as soon as September, that quickly turned to trepidation when economic data Thursday showed an unexpected jump in filings for unemployment benefits and a further weakening of the manufacturing sector.
That triggered the worst sell-off of the year on Wall Street and renewed fears that the Fed may be waiting too long to start cutting interest rates. Easing wage gains could help policymakers feel more confident that inflation is progressing back to their 2% goal.
The rise in the unemployment rate brings into play the so-called Sahm Rule, which states that the economy is in recession when the three-month average of the jobless level is half a percentage point higher than the 12-month low. In this case, the unemployment rate was 3.5% in July 2023 before it began its gradual ascent. The three-month unemployment rate average moved up to 4.13%.
“The latest snapshot of the labor market is consistent with a slowdown, not necessarily a recession,” said Jeffrey Roach, chief economist at LPL Financial. “However, early warning signs suggest further weakness.”
Roach pointed out that the ranks of those working part-time for economic reasons jumped to 4.57 million, an increase of 346,000 to the highest level since June 2021.
An alternate measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons surged 0.4 percentage point to 7.8%, the highest since October 2021.
Long-term unemployment also ticked higher. Those reporting being out of work for 27 weeks or more totaled 1.54 million, the most since February 2022.
Wall Street had been bracing for modest gains from the July payrolls report, in part over concerns about growth but also from residual impacts from Hurricane Beryl. The storm badly damaged parts of Texas including the Houston metropolitan area.
Despite some anxiety over the state of economic growth, Fed Chair Jerome Powell on Wednesday expressed confidence about the “solid” economy and said easing inflation data is raising confidence that the central bank can cut soon.
Markets have fully priced in a rate cut of at least a quarter percentage point at each of the three remaining Fed meetings this year. Odds are rising that the Fed even may go beyond traditional quarter point reductions.
“While the labor market has remained remarkably resilient over these past two years of elevated interest rates, it’s important for the Federal Reserve to stay ahead of any further labor market slowing by proceeding with its expected September rate cut,” said Clark Bellin, chief investment officer at Bellwether Wealth.
Correction: The forecast for average hourly earnings was for an increase of 0.3% for the month. An earlier version misstated the percentage.
Production at the VW plant in Emden.
Sina Schuldt | Picture Alliance | Getty Images
The struggling German economy has been a major talking point among critics of Chancellor Olaf Scholz’ government during the latest election campaign — but analysts warn a new leadership might not turn these tides.
As voters prepare to head to the polls, it is now all but certain that Germany will soon have a new chancellor. The Christian Democratic Union’s Friedrich Merz is the firm favorite.
Merz has not shied away from blasting Scholz’s economic policies and from linking them to the lackluster state of Europe’s largest economy. He argues that a government under his leadership would give the economy the boost it needs.
Experts speaking to CNBC were less sure.
“There is a high risk that Germany will get a refurbished economic model after the elections, but not a brand new model that makes the competition jealous,” Carsten Brzeski, global head of macro at ING, told CNBC.
The CDU/CSU economic agenda
The CDU, which on a federal level ties up with regional sister party the Christian Social Union, is running on a “typical economic conservative program,” Brzeski said.
It includes income and corporate tax cuts, fewer subsidies and less bureaucracy, changes to social benefits, deregulation, support for innovation, start-ups and artificial intelligence and boosting investment among other policies, according to CDU/CSU campaigners.
“The weak parts of the positions are that the CDU/CSU is not very precise on how it wants to increase investments in infrastructure, digitalization and education. The intention is there, but the details are not,” Brzeski said, noting that the union appears to be aiming to revive Germany’s economic model without fully overhauling it.
“It is still a reform program which pretends that change can happen without pain,” he said.
Geraldine Dany-Knedlik, head of forecasting at research institute DIW Berlin, noted that the CDU is also looking to reach gross domestic product growth of around 2% again through its fiscal and economic program called “Agenda 2030.”
But reaching such levels of economic expansion in Germany “seems unrealistic,” not just temporarily, but also in the long run, she told CNBC.
Germany’s GDP declined in both 2023 and 2024. Recent quarterly growth readings have also been teetering on the verge of a technical recession, which has so far been narrowly avoided. The German economy shrank by 0.2% in the fourth quarter, compared with the previous three-month stretch, according to the latest reading.
Europe’s largest economy faces pressure in key industries like the auto sector, issues with infrastructure like the country’s rail network and a housebuilding crisis.
Dany-Knedlik also flagged the so-called debt brake, a long-standing fiscal rule that is enshrined in Germany’s constitution, which limits the size of the structural budget deficit and how much debt the government can take on.
Whether or not the clause should be overhauled has been a big part of the fiscal debate ahead of the election. While the CDU ideally does not want to change the debt brake, Merz has said that he may be open to some reform.
“To increase growth prospects substantially without increasing debt also seems rather unlikely,” DIW’s Dany-Knedlik said, adding that, if public investments were to rise within the limits of the debt brake, significant tax increases would be unavoidable.
“Taking into account that a 2 Percent growth target is to be reached within a 4 year legislation period, the Agenda 2030 in combination with conservatives attitude towards the debt break to me reads more of a wish list than a straight forward economic growth program,” she said.
Franziska Palmas, senior Europe economist at Capital Economics, sees some benefits to the plans of the CDU-CSU union, saying they would likely “be positive” for the economy, but warning that the resulting boost would be small.
“Tax cuts would support consumer spending and private investment, but weak sentiment means consumers may save a significant share of their additional after-tax income and firms may be reluctant to invest,” she told CNBC.
Palmas nevertheless pointed out that not everyone would come away a winner from the new policies. Income tax cuts would benefit middle- and higher-income households more than those with a lower income, who would also be affected by potential reductions of social benefits.
Coalition talks ahead
Following the Sunday election, the CDU/CSU will almost certainly be left to find a coalition partner to form a majority government, with the Social Democratic Party or the Green party emerging as the likeliest candidates.
The parties will need to broker a coalition agreement outlining their joint goals, including on the economy — which could prove to be a difficult undertaking, Capital Economics’ Palmas said.
“The CDU and the SPD and Greens have significantly different economic policy positions,” she said, pointing to discrepancies over taxes and regulation. While the CDU/CSU want to reduce both items, the SPD and Greens seek to raise taxes and oppose deregulation in at least some areas, Palmas explained.
The group is nevertheless likely to hold the power in any potential negotiations as it will likely have their choice between partnering with the SPD or Greens.
“Accordingly, we suspect that the coalition agreement will include most of the CDU’s main economic proposals,” she said.
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