Dual Mandate in Question as Fed Faces Slowing Jobs and Rising Prices

• Non-farm payrolls rose by just 73,000 in July, missing forecasts and following a sharp downward revision to June’s data.

• The unemployment rate ticked up to 4.2%, while wage growth slowed to 3.8% and average weekly hours remained flat.

• Bitcoin dropped 3% and the dollar weakened as markets reacted to signs of labor market deterioration.

Today’s payroll data proved a big hit to an up-until-today jobs market. The Bureau of Labor Statistics released data today regarding the change in the number of people working in urban jobs. Non-farm payrolls were expected to come in at around 103,000 jobs, following an extremely lackluster report in June. However, the data showed that only 73,000 jobs were added in July.

This second consecutive forecast miss raises the alert for the government and the Federal Reserve about whether the job market is as stable as it seemed only a few months ago. Actually, the fact that June’s data was revised to only 14,000 jobs, down from an originally reported 147,000, has amplified concerns about the accuracy of previous labor strength assessments.

As forecasted, the unemployment rate ticked up by 0.1% today, at a total of 4.2%. Wage growth slowed to 3.8% year-over-year, and average weekly hours remained flat at 34.3, suggesting that employers are hesitant to expand payrolls or increase hours

Financial markets did not react positively to today’s reports. Bitcoin, which was trading at nearly $120k at the start of the week, plunged by nearly 3% in the day, now valued at $113,862. Even the dollar took a plunge, with the US Dollar Index (DXY) falling by 1.1%. 

Looking ahead, the fact that the job market is starting to bleed may lead the Fed to reconsider its position. While inflation was ticking up, the Federal Reserve’s goal, the fact that the labor market continued to be resilient, had given policymakers room to hold rates steady according to its dual-mandate goal. 

Now, this development could convince the Fed to change its stance on interest rates, as weakening labor data begins to outweigh inflation concerns.