The labor market continues to deteriorate – The Daily Tearsheet

Vital Statistics:

Stocks are lower this morning on a disappointing jobs report. Bonds and MBS are up.

The economy added 73,000 jobs in July, which was lower than expected. The unemployment rate ticked up 4.2%, while the labor force participation rate fell again. Healthcare and social assistance led the job growth, while manufacturing fell.

The internals of the jobs report are bad yet again. The jobs created were completely driven by statistical and seasonal adjustments. The number of people actually collecting paychecks fell from 163.37 million to 163.1 million, or a decrease of 260,000. The number of people unemployed rose from 7 million to 7.2 million, while 239,000 people exited the labor force.

The labor force participation rate and the employment-population ratios both fell:

The two month revisions were godawful as well, with May falling from +144,000 to +19,000 and June decreasing from +147,000 to +14,000. Bottom line: The labor market is a lot weaker than the Fed is giving it credit for.

The Fed’s dual mandate it to target PCE Price Inflation along with unemployment. The unemployment rate is being held down by people exiting the labor force, which is not indicative of a healthy job market. We have had a solid string of job losses in professional and business services, which is Ground Zero for AI.

WSJ reporter Nick Timaros quietly signaled to the markets that a September rate cut is unlikely. “Officials are betting they can afford to wait at least two months for clarity on whether tariffs will slow economic activity, fuel inflation, or pass by with little effect. That patience comes with risks—on both sides.”

Two months = August and September. Meanwhile, the labor market continues to deteriorate.

The bright side is that the yield curve is beginning to do the work for the Fed. The 10 year is now at the lower band of the Fed Funds target rate, which means we are looking at an inversion. So mortgage bankers can take at least some solace.