NEW YORK (Reuters)—U.S. job growth slowed more than expected in July, while the unemployment rate increased to 4.3%, stoking fears that the labor market is deteriorating and making the economy vulnerable to a recession.
Employers added 114,000 jobs, below expectations for an 175,000 increase. The unemployment rate rose to 4.3%, above economists expectations that it would be unchanged on the month at 4.1%, the Labor Department's Bureau of Labor Statistics said in its closely watched employment report on Friday.
Economists polled by Reuters had forecast payrolls advancing by 175,000 jobs after a previously reported 206,000 gain in June. Estimates ranged from 70,000 to 225,000.
The labor market is slowing, driven by low hiring, rather than layoffs, as the Federal Reserve's interest rate hikes in 2022 and 2023 dampen demand. The rise in the unemployment rate from 4.1% in June marked the fourth straight monthly increase. That could escalate fears over the durability of the economic expansion.
"I'm beginning to smell a recession coming into view," economist John Lonski said.
Government data this week showed hires dropped to a four-year low in June.
Average hourly earnings rose 0.2% last month after climbing 0.3% in June. In the 12 months through July, wages increased 3.6%. That was the smallest year-on-year gain since May 2021 and followed a 3.8% advance in June.
"The American job market has significantly downshifted as consumers, which drive the economy, are tapped out from the ongoing cost-of-living crisis under the Biden-Harris administration," Alfredo Ortiz, CEO of Job Creators Network, said in a statement. "To reinvigorate the job market and overall American economy, new leadership in the Executive Branch is needed. Conservative pro-growth policies such as tax cuts, deregulation, and domestic energy production can empower Main Street job creators to restore shared economic prosperity."
Though wage growth remains above the 3%-3.5% range seen as consistent with the Fed's 2% inflation target, it extended the run of inflation-friendly data. The employment report sealed the case for a September rate cut from the U.S. central bank.
"To me it's a little surprising the market is reacting so badly because at the same time the likelihood of a bigger rate cut has gone up and the market tends to like that," said Melissa Brown, managing director of applied research at SimCorp.
The dollar index fell 0.63% on the day to 103.70 and got as low as 103.61, the lowest since March 21.
The euro was last up 0.61% at $1.0857. The greenback weakened 1.39% to 147.29 Japanese yen and got as low as 147.11, the lowest since March 12.
"If [Federal Reserve chair Jerome] Powell knew then what he knows now, he probably would have cut rates," said Brian Jacobsen, chief economist at Annex Wealth Management. "By keeping rates on hold while inflation fell, they’ve applied too much pressure on the brakes. The decline in hours for the manufacturing work week is not a good sign for this being just a soft patch. The Fed can’t bank on economic momentum bailing them out from being too slow to recognize how quickly things are changing."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Chizu Nomiyama)
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