July’s employment report comes in below expectations
By Lisa Sturtevant, PhD Chief Economist, Bright MLS
The U.S. labor market has been surprisingly buoyant in the face of stubborn inflation and relatively high interest rates, but there are signs of a sea change. The July employment report from the U.S. Bureau of Labor Statistics was sobering, with the economy adding just 114,000 jobs—well below analysts’ expectations. Employment figures for both May and June were also revised downward with the release of this report.
Cooler Conditions Ahead
The report on job growth in July—along with other recent economic data releases—shows that the labor market is definitely cooling. The risk of an economic recession is still low, but the pullback in private-sector employment suggests that higher borrowing costs and uncertainty are definitely having an impact. The BLS’s Job Openings and Turnover report released earlier this week showed that the number of job openings has declined, hiring activity is slower, and fewer people are leaving their jobs. The good news is that a moderating labor market gives the Fed more confidence about cutting rates in September.
The Fed Gets Ready to Make a Move
The Federal Reserve closely watches data on the labor market. The strong labor market has been a key reason why the Fed has not cut interest rates so far this year. Inflation is another, and new data on inflation will be released later this month. If the inflation data for July continues to show a decline, it is all but certain that the Federal Reserve will cut interest rates in September.
Mixed Signals for the Housing Market
Mortgage rates—which are not directly set by the Federal Reserve—have already started to come down, partially due to expectations of the fall rate cuts. Assuming the economy comes in for the so-called soft landing, lower mortgage rates will bring both more homebuyers and sellers into the market in the second half of 2024.
But if there is more economic bad news, the housing market could be weaker than expected in the second half of 2024. This week, the U.S. stock market suffered its worst day in almost two years. If the labor market loses further momentum and individuals and families start feeling more uncertain about their own jobs and personal financial situations, they may pull back from the housing market.
Overall, housing market fundamentals are still strong, but it could be a bit of a choppy trip for the next few months.
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