In the July edition of our monthly outlook, Flash Fixed Income, we highlighted that the US labour market was the area to focus on, and Friday’s data offered plenty for investors to digest with a flurry of concerning numbers. July non-farm payrolls growth was expected to fall from the +147k reported in June, but at +73k it was well below expectations. What we think really spooked the market however were the revisions to previous months. That +147k number for June was revised to just +14k, while May’s was also reduced by 125k. With those 258k of jobs removed, the average growth over the previous three months falls to just 35k – the lowest three-month average since June 2020. Before Friday, the data had indicated a surprising degree of strength from a US labour market that had been expected to slow this year even before being jolted by tariff impacts. While the unemployment rate increased to 4.2% from 4.1%, the participation rate actually dropped to 62.2% from 62.3% and average hourly earnings increased from 3.7% to 3.9%. Small changes, but in line with the trends we highlighted as areas of concern last month.
US labour market data busts benign macro narrative
In describing how markets have been pricing risk in recent months, the word “complacent” has been uttered on multiple occasions. If that was your view, then Friday’s sharp risk-off move could be seen as a wake-up call, or at least evidence that investors are keenly watching for any change in the more benign macro story that has dominated recently.
