INSTANT VIEW-US job growth sharply slows in July, unemployment rate ticks higher

NEW YORK, July 31 (Reuters) - U.S. job growth slower much more than expected in July, and the data from the prior month was revised sharply lower, indicating the labor market could be showing signs of stalling.

Nonfarm payrolls increased by 73,000 jobs in July, after rising by a downwardly revised 14,000 in June, the Labor Department data showed on Thursday. Economists polled by Reuters had forecast 110,000 jobs added last month.

The unemployment rate rose to 4.2% in July from 4.1% in the previous month.

MARKET REACTION

STOCKS: S&P E-minis EScv1 briefly pared declines and were last down 1.05%

BONDS: Treasury yields dropped, with the yield on the benchmark U.S. 10-year note US10YT=RR down 9.9 basis points at 4.261% and the two-year note yield US2YT=RR down 18.2 basis points to 3.77%

FOREX: The dollar weakened sharply, with the dollar index =USD down 1.16% to 99.31

COMMENTS:

HELEN GIVEN, DIRECTOR OF TRADING, MONEX USA, WASHINGTON:

“It's worse than anyone expected and the kicker is that downward revision for the prior month too…that figure going from 147,000 to just 14,000, it's frankly pretty shocking.”

“This is what Powell was emphasizing in his press conference on Wednesday. He did say on Wednesday that we were looking at holding rates steadier for longer, but that we were going to get two sets of employment data before the next Fed meeting. So as this first set has been so decidedly negative… the labor market is clearly, clearly cooling, that's going to raise the importance of that September figure as well.”

“I still don't think it's likely that the Fed will cut interest rates in September, I think they might keep holding off if we get an August jobs report that's not that bad. They might hold off further, but we'll definitely see a cut in October, and I would say definitely again in December as well. So, we're going to see likely 50 basis points of easing this year, which is a market change in overnight swaps from yesterday.”

JEFF SCHULZE, HEAD OF ECONOMIC AND MARKET STRATEGY, CLEARBRIDGE INVESTMENTS, NEW YORK (emailed comment)

"The July jobs report officially confirms that the labor market has kicked into a lower gear after today’s headline miss coupled with negative revisions of -258k to the prior two months. Investors will need to recalibrate their views on what is the 'normal' pace of employment growth going forward given the headwinds of lower immigration, an aging demographic and the arrival of DOGE related layoffs.

"This payroll report kicks the door wide open for a September rate cut. Although the effects of tariff pass-through still lie ahead, the Fed will not want to wait too long to begin its cutting cycle with the nonfarm payrolls flatlining at 35k on average over the past 3 months and the unemployment rate ticking higher.

"While investors have been viewing the commencement of the Fed cutting cycle as a positive catalyst for risk assets, today’s release is best characterized as 'bad news is bad news' in our view. With job creation at stall speed levels and the tariff headwind lying ahead, there’s a strong possibility of a negative payroll print in the coming months which may conjure up fears of a recession. This print should pressure risk assets and cause safe haven buying in US treasuries.”

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VA (emailed comment)

"Powell is going to regret holding rates steady this week. September is a lock for a rate cut and it might even be a 50-basis point move to make up the lost time."

ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY WEALTH, BOSTON (emailed comment)

"Today’s jobs report is unambiguously soft and a reflection of the trade and tariff impact on economic growth. Both the actual report and the big negative revisions are more evidence that the trade policy will slow growth.

"What we know about our workforce population growth is that we need to create between 100 and 150 thousand jobs a month to keep the unemployment rate unchanged. That is down from a range of 150 to 200 thousand last year due to less immigration. The three-month average coming to today’s report was 150 thousand. The new three-month average of job creation is now 80 thousand. Not great news."

SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT, LONDON (emailed comment)

"Not only was this a much weaker than forecast payrolls number, the monster downward revisions to the past two months inflicts a major blow to the picture of labor market robustness. What’s more concerning is that with negative impact of tariffs only just starting to be felt, the coming months are likely to see even clearer evidence of a labor market slowdown.

"Of course, with Powell emphasizing his focus on the unemployment rate which has only ticked up to 4.2%, perhaps it is too early to press the panic button. The shrinking of labor supply is somewhat offsetting the weakness in labor demand, keeping the labor market in an uneasy state of equilibrium. Even so, the sheer weakness of today’s payrolls number means that Powell will have to take notice. The odds of a September cut just took a big leap higher."

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, NC (emailed comment):

"Just two days after the conclusion of this month’s Fed meeting, suddenly the dual mandate is back on the table. With this morning’s payroll miss – and the downward revisions that came with it – the Fed will again need to balance a slowing job market with inflation which isn’t slowing fast enough.

"The knee jerk reaction from markets is for interest rates to drop and stock futures to give up ground. While normally it would make sense to focus more on the 3-month moving average and not the headline number, both are in play today because of the -258,000 revision to prior months’ jobs numbers.

"The stock market will probably move past this particular report and keep climbing this month, but today could be an ugly day in the market given the confluence of new tariff announcements and more evidence that the job market is slowing."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"If Powell knew then what he knows now, maybe even he would have dissented from the decision to continue the rate cut pause. There’s no way to pretty-up this report. Previous months were revised significantly lower where the labor market has been on stall-speed.

"History is repeating itself. Last year the Fed messed up by not cutting in July so they did a catch-up cut at their next meeting. They’ll likely have to do the same thing this year."