The U.S. labor market looks much weaker than previously thought, and Wall Street now expects the Federal Reserve to resume rate cuts sooner rather than later.
The Labor Department reported Friday that payrolls grew by just 73,000 last month, well below forecasts for about 100,000.
But downward revisions for prior months shocked investors even more, revealing that the labor market came to a near standstill over the spring. May’s tally was cut from 144,000 to 19,000, and June’s total was slashed from 147,000 to just 14,000, resulting in a combined cut of 258,000. The average gain over the last three months is now only 35,000.
The news came just days after the Fed kept rates steady again with Chairman Jerome Powell signaling a continued desire to wait for more data to see how President Donald Trump’s tariff would impact inflation, which is still running about the central bank’s 2% target.
“Powell is going to regret holding rates steady this week,” Jamie Cox, managing partner for Harris Financial Group, said in a note. “September is a lock for a rate cut and it might even be a 50-basis point move to make up the lost time.”
The unemployment rate also edged up to 4.2% from 4.1%, even as the labor force shrank. Meanwhile, U.S. factories continued to slump and cut 11,000 jobs last month after shedding 15,000 in June and 11,000 in May amid uncertainty over Trump’s trade war.
Stocks plummeted on the jobs data, with the S&P 500 down 1.7% and the Nasdaq down 2.3%. The 10-year Treasury yield sank more than 11 basis points to 4.247% as Wall Street priced in a rate cut at the Fed’s meeting next month and more later in the year.
After the jobs report, Trump reiterated his months-long demand for the Fed to lower rates, while Cleveland Fed President Beth Hammack stood by the central bank’s decision on Wednesday to keep policy steady.
“Headline NFP at 73k is a miss, but perhaps more concerning is -258k net revisions to the prior two months. These revisions put May’s headline NFP at 19k and June’s at 14k,” Adam Hetts, global head of Multi-Asset and portfolio manager at Janus Henderson Investors, said in a note. “Had those figures been the initial prints a month or two ago it would have significantly changed the labor market narrative over the entire summer. Indeed, odds of a September rate cut are increasing significantly on the back of this data release.”
