5 Top Economists React To July's Job Data: Insights On Labor Market Slowdown And Its Impact On Fed Policy

The July performance of the U.S. labor market has caught the attention of economists as they evaluate its implications for the Federal Reserve’s future actions.

Non-farm payrolls showed a gain of 187,000 jobs in July, falling short of the expected 200,000, while June’s figure was revised down to 185,000. This points to a slowdown in the pace of new job creation in the economy. However, there was a pleasant surprise as the unemployment rate dropped back to 3.5%.

Additionally, in a still robust labor market, wages experienced solid growth, increasing by 0.4% month-on-month and 4.4% year-over-year, surpassing estimates.

The SPDR S&P 500 ETF Trust SPY rose 0.7% on Friday, snapping a 3-day losing streak.

How should investors interpret July’s jobs report? What conclusions can we draw about the state of the U.S. economy, and what implications do the jobs data have for Federal Reserve policy?

Here are five notable economists’ reactions to the jobs report.

1. Nathaniel Casey: Encouraging Decline, but Cooling Needed

Nathaniel Casey, investment strategist at Evelyn Partners, expressed optimism over the job creation trend but stressed the need for further cooling in the labor market. He pointed out that non-farm payrolls (NFPs) have been on a steady downward trajectory, gaining 187,000 jobs in July. However, when looking at a three-month moving average, NFPs have significantly halved from July 2023, signaling room for improvement. Still, “job creation remains elevated compared to its 20-year average,” Casey said.

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2. Charlie Ripley: A Closer Look Reveals Soft Spots

Charlie Ripley, senior investment strategist for Allianz Investment Management, stated that the headline figure met expectations at 187,000 jobs, but pointed out areas of concern, particularly in sectors like leisure, hospitality, transportation, technology, and temporary assistance. Ripley noted that the overall outlook for the Federal Reserve remains largely unchanged, as the economy continues to move towards the central bank’s goals.

3. Joe Brusuelas: Cooling Labor Market, Hints of a Peak

Principal & chief economist at RSM US LLP, Joe Brusuelas, highlighted the solid demand for labor but acknowledged its cooling pace compared to previous years. He emphasized the ongoing shortage of workers compared to available jobs, resulting in low unemployment rates and rising wages. Brusuelas believes that wage growth, currently above inflation, will contribute to a change in public sentiment toward the overall economy.

He predicts that the Federal Reserve is unlikely to change the federal funds policy rate at the upcoming meetings, as the labor market cools and overall inflation remains moderate. The current rate likely represents the peak in the business cycle.

4. Bill Adams: Fed’s Focus on Inflation Amidst Upside Risks

Chief economist at Comerica Bank, Bill Adams, sees the July jobs report as reflecting a robust economy that is meeting the Fed’s mandate for maximum employment. He believes that with a strong labor market and rising wages, the odds of another quarter percentage point rate hike in late 2023 are high, with the most likely date being the Fed’s November 1 meeting. Adams suggests that interest rates are likely near their peak for this cycle.

5. Lawrence Yun: A Mixed Picture for Working Americans

NAR chief economist Lawrence Yun expressed concern over the slowdown in job additions, with July and June marking the slowest months of job growth since the start of the pandemic. On the positive side, wage rates rose by 4.4%, improving the standard of living for working Americans, who have faced falling living standards due to inflation in previous years.

Yun believes that the economy is moving forward, but he warns that continued rate increases by the Federal Reserve could potentially lead to a job-cutting recession.

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