US July Jobs Data Raises Concerns About Economic Growth

Data released by the US Bureau of Labor Statistics showed that seasonally adjusted nonfarm payrolls in the United States for July recorded 73,000, lower than the market expectation of 110,000, and the smallest increase since last October. In addition, the nonfarm payroll figures for May and June were revised down by a total of 258,000 jobs. The May figure was revised from 144,000 to 19,000, and the June figure was revised from 147,000 to 14,000. The US unemployment rate in July rose to 4.2%, in line with market expectations. The US average hourly earnings in July recorded 3.9% year-on-year, the highest since March, and exceeded the market expectation of 3.8%.

Market Reactions: Gold Rises, Dollar Falls

Following the release of the US nonfarm payroll data, spot gold rose by $38 within 15 minutes, touching $3,340 per ounce. The dollar index fell by more than 100 points, losing the 99 level. Non-US currencies experienced a collective rise, with the British pound rising against the dollar by more than 70 points in the short term, the euro rising against the dollar by about 90 points in the short term, and the dollar falling against the Japanese yen by about 110 points in the short term.

Rate Cut Expectations Surge

Futures markets suggest that traders believe there is a 75% chance of a 25 basis point interest rate cut at the Fed's September meeting, compared to 45% before the jobs report was released. Traders have fully digested the scenario of the Federal Reserve cutting interest rates in October and twice before the end of the year. Money markets expect the European Central Bank to cut interest rates in March 2026 with an 80% probability, compared to a 65% expectation before the US data was released.

Impact of Future Inflation Data

Following the release of the jobs data, the market quickly shifted, and front-end bond yields fell sharply, reflecting investors' renewed embrace of rate cut expectations. Crucially, July and August inflation data will have a decisive impact on the Fed's decisions and the trajectory of the bond market.

Labor Market Analysis: Slowdown and Shrinking Participation

Institutional analysis indicates that average hourly earnings don't convey much information. Income has grown by 3.9% over the course of more than a year, which is faster than inflation, meaning that workers' purchasing power is rising. Considering the large downward revisions in the past two months, the average number of jobs added in the past three months is only 35,000. This is undoubtedly the weakest pace of hiring since the outbreak of the 2020 pandemic. It is worth noting that the labor force participation rate is declining. The number of workers has decreased for the second consecutive month, which is not a good sign. Although there are many people leaving the labor market, the fact that the unemployment rate rose in July is even more worrying. In addition, employment indicators in the household survey show a contraction in July. These data send a stronger signal that the labor market is not just slowing down. Not only has job growth cooled significantly, and the unemployment rate risen, but it has also become more difficult for unemployed Americans to find work, and wage growth has basically stalled. This poses further risks to the slowdown already apparent in consumer and business spending.

Impact on the Stock Market

Ryan Hammond, US Investment Portfolio Strategist at Goldman Sachs, stated that Friday's jobs report is an important test for the US stock market. In the past few weeks, the US stock market has consistently hit historical highs. Because cyclical stocks have significantly outperformed defensive stocks, and stock market valuations are approaching record highs, the stock market seems to be absorbing a favorable combination of strong future growth expectations and a dovish Federal Reserve stance. Goldman Sachs pointed out that an extremely weak jobs report will test investors' ability to see through short-term growth weakness and reignite left-tail risks in the stock market.