US labor market surprises on the downside, unemployment rate rises to 4.3%

The US Bureau of Labor Statistics published its July employment situation report, reporting a two-tenths increase in the unemployment rate, which now stands at 4.3%, and recording an addition of 114,000 new jobs in non-agricultural payrolls, a figure significantly lower than the average for the last 12 months (215,000), which was accompanied by a downward revision in last month’s data (-27,000).

The report also recorded a slowdown in weekly hours worked (34.2 vs. 34.3 in June) and average hourly earnings, which showed a monthly growth of 0.2%, accumulating a year-on-year variation of 3.6%.

In this regard, Mauricio Guzmán, head of Investment Strategy at SURA Investments, explained that although the general expectation was for continued moderation of the labor dataThe report negatively surprised markets, which were anticipating stability in the unemployment rate at 4.1% and expecting a significantly larger increase in non-agricultural payrolls (175,000).

He also said that the above caused nervousness regarding the health of the economy, changing the conversation from when the cuts will be made. Federal Reserve to what magnitude they will have.

In line with this, fixed-income markets now expect a 100-basis-point cut in the target rate for the remainder of the year, explaining the declines of approximately 20 bps in the 2-year rate, and 11 bps in the 10-year rate. Equities also had significant reactions, with the main US stock indices trading lower.

“Despite the greater weakness indicated by the labor report, we believe that the economy continues to follow a path of normalization, with growth that, although it would be reduced compared to the levels observed in 2023, would remain relatively solid, as reflected in the second quarter activity report. This leads us to continue to expect two rate cuts by 2024, considering that the market may have overreacted to today’s jobs data.“, Guzman said.