The July jobs report released this morning came as a shock to the markets as the US economy unexpectedly lost 23,000 jobs versus an expected 83,000 job gain.

According to the Bureau of Labor Statistics (BLS), the greatest job “losses” were in “local government education,” which declined by 50,000 roles, likely reflecting teachers during summer break.  Given that these losses should reverse themselves as teachers go back to work in August, you can take what you want from these numbers.  Nevertheless, it was overall a weak jobs report that also showed that wages grew just 3.2% from a year ago (down from a 3.5% rate in June), weak private sector job growth, and a declining unemployment rate (now 4.1% versus 4.2% in June) due to fewer people actively looking for work.

The pain of inflation, currently 3.5%, becomes much more widespread when wage growth, currently 3.2%, slows to a rate below inflation.

“The July employment report solidified that the labor market is not out of the woods quite yet,” said Nicole Bachaud, a labor economist at ZipRecruiter.

“The labor market is stalling again,” wrote Heather Long, chief economist at Navy Federal Credit Union, who called the report “bleak.”

As of midday Friday, stock and bond markets are welcoming the report since the probability of interest rate hikes this year are now tumbling lower.  The Fed is tasked with promoting full employment and price stability, and it is much less likely that they will raise interest rates to get ahead of inflation if it runs a greater risk of further damaging a weakening labor market.

Essentially, markets love a scenario where a weak economy would keep the Fed from raising interest rates but is not weak enough to impact corporate profit margins or earnings growth, both of which are currently at historic highs.

Have a great weekend.

Jack C. Harmon II, CFP^®, CIMA

Principal, Harmon Financial Advisors

Registered Principal, Raymond James Financial Services

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