The U.S.economy added only 114,000 jobs in July. Economists surveyed by Bloomberg had projected an increase of 175,000 jobs in the month.
The unemployment rate unexpectedly climbed by 0.2 percentage points to 4.3% in July, exceeding all 69 estimates by economists.
Average hourly earnings rose 0.2% on a monthly basis, also less than forecast, and on an annual rate increased by 3.6%–the least since May 2021.
The jump in the unemployment rate triggered the Sahm Rule. Coined by former Federal Reserve economist Claudia Sahm, the rule says that when the average jobless rate over three months is 0.5 percentage point above the 12-month low, a recession is coming. And that’s exactly where we are now. “We’re not headed in a good direction,” Sahm said on Bloomberg Radio Friday.
It’s fair to say the stocks weren’t happy on Friday. The Standard % Poor’s 500 fell 1.84%. The DowJones Industrial Average dropped 1.51% or 610 points. The NASDAQ Composite Index lost 2.43% to enter correction territory. The small-cap Russell 2000 tumbled 3.52%.
Bonds rallied and yields fell as the bond market priced in not just a September cut in interest rates but the possibility of three cuts in 2024. Including a 50 basis-point cut, instead of a business as usual 25 basis points, in September. Two-year Treasury yields plunged as much as about 30 basis points, and finished the day at 3.88%. The yield on the 10-year Treasury fell to 3.79%.
The driver here is a fear that recent dat show that the Federal Reserve has waited to long ti lowe invest rates and that consequently the U.S. economy is about to slip into recession.
