July 2023 Jobs Report Reveals Cooling Labor Market, Unemployment Drops Again

Q.ai — a Forbes Company
3 min readAug 4, 2023

Key takeaways

  • There were 187,000 new jobs added to the economy in July, which surprised on the downside
  • Wage growth remained an issue and came in hotter than expected for a 4.4% annual pace
  • Wall Street looked at the positives, with the markets opening higher on Friday

The U.S. economy added fewer jobs than expected, suggesting the economy has further cooled and ending a confusing pattern of the labor market remaining persistently defiant in the face of high interest rates. It was a mixed bag overall, with enough to give the Fed a headache and have the markets cheering, depending on how one interprets the results. Here’s the latest.

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What did the latest jobs report say?

Non-farm payrolls rose by 187,000 jobs for July, slightly below the estimated 200,000 from Dow Jones. It’s a slight increase from the revised June amount, which reached 185,000.

Interestingly the unemployment rate came in lower than anticipated — the figure was anticipated to remain at 3.6%. The U.S. unemployment rate has remained at record-low levels not seen in decades for most of 2023.

The bad news was that average hourly earnings, a key inflation indicator, also rose. For July, earnings increased by 0.4% for a 4.4% annual pace. Forecasts had predicted a 0.3% rise at a 4.2% annual increase.

What does it mean?

The results are mixed. While the labor market remains healthy, which is crucial for the Fed to achieve its fabled ‘soft landing’ if it continues to raise interest rates, a too-hot jobs market could help bake inflation into the economy.

Wage inflation is still double what the Fed believes to be a healthy growth rate, which is enough reason to give the Fed pause to consider the next steps in battling inflation. July’s meeting saw the central bank increase interest rates to their highest levels in 22 years, now at a target range of 5.25% to 5.5%.

Nonetheless, the markets decided to look on the bright side. The S&P 500 rose 0.4% on Friday morning; the Dow Jones also gained 0.4% and the tech-heavy Nasdaq climbed 0.7%.

The bottom line

While Wall Street is taking a glass-half-full approach, the Fed will be concerned about wage growth and record-low unemployment further driving up inflation and undoing the good work the monetary tightening policy has done. Next week’s consumer price index (CPI) report should shed more light on where the U.S. economy is headed.

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Q.ai — a Forbes Company

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