July’s jobs report validates the potential for a rate cut in September, economic analysts agree.
Unemployment increased to 4.3% in July, and non-farm payroll employment edged up by 114,000. This was slightly higher than economists predicted, expecting 175,000 jobs and an unemployment rate of 4.1%.
“July’s top line numbers, which came in below consensus expectations and included the highest unemployment rate since 2021, are likely going to intensify fears that a rate cut in September is too little, too late,” commented First American Deputy Chief Economist Odeta Kushi.
The jobs report also included a revision to May’s non-farm payroll employment, from an increase of 218,000 to an increase of 216,000. June’s figures were revised down by 27,000, from an increase of 206,000 to an increase of 179,000.
Analysts say July jobs data increases the likelihood of a larger September rate cut, with the likelihood of a 50 bps rate cut in September now up to 70%. The Federal Reserve's meeting last week hinted towards a rate cut, with Fed Chair Jerome Powell sharing that “a reduction in the policy rate could be on the table at the September meeting."
"The Fed was late moving away from the restrictive monetary policy stance when early signs of a softening economy were visible," said Lawrence Yun, chief economist at the National Association of Realtors (NAR). "Soft manufacturing survey data falls in construction activity, and damaging financing costs for small businesses clearly hint at a cooling economy and further cooling in inflation. The Fed may make a deeper cut of 50 basis points in September."
Wage growth slowed to 3.6% year-over-year, down from June's annual pace of 3.8%.
“The decline in 10-Year Treasury means we can expect some downward pressure on mortgage rates, which will be music to the ears of home buyers,” Kushi said. “Housing is notoriously interest-rate sensitive and has been sluggish due to the affordability constraints caused by record-high house prices and mortgage rates in the high 6s.”
Unemployment is still historically low at 4.3%, despite the recent increase.
“While lower mortgage rates will be welcome news for potential home buyers, we also want a resilient labor market,” Kushi added. “Home buyers need to feel confident about their jobs to make what is likely to be the biggest financial decision of their life.”
