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.
Economics
China targets U.S. services and other areas after decrying ‘meaningless’ tariff hikes on goods
Dilara Irem Sancar | Anadolu | Getty Images
China last week announced it was done retaliating against U.S. President Donald Trump’s tariffs, saying any further increases by the U.S. would be a “joke,” and Beijing would “ignore” them.
Instead of continuing to focus on tariffing goods, however, China has chosen to resort to other measures, including steps targeting the American services sector.
Trump has jacked up U.S. levies on select goods from China by up to 245% after several rounds of tit-for-tat measures with Beijing in recent weeks. Before calling it a “meaningless numbers game,” China last week imposed additional duties on imports from the U.S. of up to 125%.
While the Trump administration has largely focused on pressing ahead on his tariff plans, Beijing has rolled out a series of non-tariff restrictive measures including widening export controls of rare-earth minerals and opening antitrust probes into American companies, such as pharmaceutical giant DuPont and IT major Google.
Before the latest escalation, in February Beijing had put dozens of U.S. businesses on a so-called “unreliable entity” list, which would restrict or ban firms from trading with or investing in China. American firms such as PVH, the parent company of Tommy Hilfiger, and Illumina, a gene-sequencing equipment provider, were among those added to the list.
Its tightening of exports of critical mineral elements will require Chinese companies to secure special licenses for exporting these resources, effectively restricting U.S. access to the key minerals needed for semiconductors, missile-defense systems and solar cells.
In its latest move on Tuesday, Beijing went after Boeing — America’s largest exporter — by ordering Chinese airlines not to take any further deliveries for its jets and requested carriers to halt any purchases of aircraft-related equipment and parts from U.S. companies, according to Bloomberg.
Having deliveries to China cut off will add to the cash-strapped plane maker’s troubles, as it struggles with a lingering quality-control crisis.
In another sign of growing hostilities, Chinese police issued notices for apprehending three people they claimed to have engaged in cyberattacks against China on behalf of the U.S. National Security Agency.
Chinese state media, which published the notice, urged domestic users and companies to avoid using American technology and replace them with domestic alternatives.
“Beijing is clearly signaling to Washington that two can play in this retaliation game and that it has many levers to pull, all creating different levels of pain for U.S. companies,” said Wendy Cutler, vice president at Asia Society Policy Institute.
“With high tariffs and other restrictions in place, the decoupling of the two economies is at full steam,” Cutler said.
Targeting trade in services
China is seen by some as seeking to broaden the trade war to encompass services trade — which covers travel, legal, consulting and financial services — where the U.S. has been running a significant surplus with China for years.
Earlier this month, a social media account affiliated with Chinese state media Xinhua News Agency, suggested Beijing could impose curbs on U.S. legal consultancy firms and consider a probe into U.S. companies’ China operations for the huge “monopoly benefits” they have gained from intellectual-property rights.
China’s imports of U.S. services surged more than 10-fold to $55 billion in 2024 over the past two decades, according to Nomura estimates, driving U.S. services trade surplus with China to $32 billion last year.
Last week, China said it would reduce imports of U.S. films and warned its citizens against traveling or studying in the U.S., in a sign of Beijing’s intent to put pressure on the U.S. entertainment, tourism and education sectors.
“These measures target high-visibility sectors — aviation, media, and education — that resonate politically in the U.S.,” said Jing Qian, managing director at Center for China Analysis.
While they might be low on actual dollar impact given the smaller scale of these sectors, “reputational effects — such as fewer Chinese students or more cautious Chinese employees — could ripple through academia and the tech talent ecosystem,” he added.
Nomura estimates $24 billion could be at stake if Beijing significantly step up restrictions on travel to the U.S.
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Travel dominated U.S. services exports to China, reflecting expenditure by millions of Chinese tourists in the U.S., according to Nomura. Within travel, education-related spending leads at 71%, it estimates, mostly coming from tuition and living expenses for the more than 270,000 Chinese students studying in the U.S.
Entertainment exports, encompassing films, music and television programs, accounted for just 6% of U.S. exports within this sector, the investment firm said, noting that Beijing’s latest move on film imports “carries more symbolic heft than economic bite.”
“We could see deeper decoupling — not only in supply chains, but in people-to-people ties, knowledge exchange, and regulatory frameworks. This may signal a shift from transactional tension to systemic divergence,” said Qian.
Can Beijing get more aggressive?
Analysts largely expect Beijing to continue deploying its arsenal of non-tariff policy tools in an effort to raise its leverage ahead of any potential negotiation with the Trump administration.
“From the Chinese government’s perspective, the U.S. companies’ operations in China are the biggest remaining target for inflicting pain on the U.S .side,” said Gabriel Wildau, managing director at risk advisory firm Teneo.
Apple, Tesla, pharmaceutical and medical device companies are among the businesses that could be targeted as Beijing presses ahead with non-tariff measures, including sanction, regulatory harassment and export controls, Wildau added.
Shoppers and staff are seen inside the Apple Store, with its sleek modern interior design and prominent Apple logo, in Chongqing, China, on Sept. 10, 2024.
Cheng Xin | Getty Images
While a deal may allow both sides to unwind some of the retaliatory measures, hopes for near-term talks between the two leaders are fading fast.
Chinese officials have repeatedly condemned the “unilateral tariffs” imposed by Trump as “bullying” and vowed to “fight to the end.” Still, Beijing has left the door open for negotiations but they must be on “an equal footing.”
On Tuesday, White House press secretary Karoline Leavitt said Trump is open to making a deal with China but Beijing needs to make the first move.
“In the end, only when a country experiences sufficient self-inflicted harm might it consider softening its stance and truly returning to the negotiation table,” said Jianwei Xu, economist at Natixis.
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