Weak US job numbers fuel fears as stock markets plunge

Hiring in the US slowed sharply last month and the unemployment rate rose, stoking fears about the state of the world’s largest economy.

Employers added 114,000 jobs in July, official figures showed, fewer than expected and far lower than in June.

Global stock markets are already on edge after earlier US data showed weaker manufacturing activity and major companies such as Intel and Amazon published a string of disappointing financials.

The employment figures suggest the long-running jobs boom in the US might be coming to an end, as the highest borrowing costs in two decades weigh on the economy.

The three major share indexes in the US, which were hitting new records just a few weeks ago, have been on a downward slide in recent days.

The Dow Jones Industrial Average, S&P 500, and Nasdaq were all lower in morning trade on Friday, with the S&P down more than 2% and the Nasdaq sinking more than 3%.

It has sparked fears which have also spread to international markets.

In Asia and Europe, most major indexes were down on Friday, with Japan’s Nikkei 225 index tumbling, to close nearly 6% lower.

Neil Birrell, chief investment officer at Premier Miton Investors, said the US jobs data, which showed the unemployment rate rising to 4.3% from 4.1% in June, “couldn’t have been released at a more sensitive time”.

“Markets are wobbling, concerns over Fed policy abound and corporate earnings are in the spotlight,” he said. “The weak data will cause more angst, and concerns over the health of the economy will increase.”

The Federal Reserve, unlike other central banks including the Bank of England, has held off cutting interest rates in recent months, pointing to relatively strong growth, as a healthy job market helps prop up consumer spending.

But the head of the bank, Jerome Powell, signalled it was likely to cut rates at its next meeting in September, noting that the labour market had cooled significantly over the last 12 months and he did not want to see further weakening.

Friday’s report showed the unemployment rate rising to 4.3% – the highest rate since 2021 and up from 3.5% a year ago.

Wage gains have also slowed, with average hourly pay rising 3.6% over the last 12 months.

Seema Shah, chief global strategist at Principal Asset Management, said the latest figures raised questions about whether the Fed had waited too long.

“Job gains have dropped below the 150,000 threshold that would be considered consistent with a solid economy,” she said.

“A September rate cut is in the bag and the Fed will be hoping that they haven’t, once again, been too slow to act.”

The jitters about the economy arrive in the middle of the heated US presidential campaign, making the Fed’s moves subject to intense political debate.

Richard de Chazal, analyst at investment bank William Blair, said he believed one reason the Fed had been reluctant to lower rates was that officials wanted “an overwhelming abundance of data behind it to justify such a cut – and deflect any criticism about lowering rates in an election year”.

Though Republicans have suggested that lowering rates would amount to helping Democrats, he said the latest figures meant it could be the [Kamala] “Harris camp with right to grumble” at the Fed if its decision to hold off leads to an economic downturn.

In a statement on Friday, President Joe Biden said the economy was still making progress.

Job gains last month were driven by hiring in health care and construction, while the information sector – which includes tech companies – shed jobs.

On Thursday, US chip-maker Intel announced plans to cut more than 15,000 job cuts as it seeks to revive the business after reporting falling sales.

Last month’s uptick in the unemployment rate also appeared driven by a rise in people looking for work, rather than a sudden surge in job losses, analysts said.

That would match other data suggesting that the economy is still in solid shape.

The Commerce Department reported this month that gross domestic product (GDP), the widest measure of economic growth, expanded at an annual rate of 2.8% this spring, picking up after a slump at the start of the year.

“The July employment report showed considerable softening in the labor market, but we think the data, particularly the rise in the unemployment rate, is overstating emerging weakness,” said Nancy Vanden Houten, lead US economist at Oxford Economics.

“We aren’t dismissing the entire upward creep in the unemployment rate, but the economy is not in recession.”