Employment Growth in July Far Below Expectations
May and June Figures Revised Down by Over 100,000
Fed Expected to Reconsider Timing of Rate Cuts
U.S. employment statistics have sent shockwaves through the financial markets. In addition to lower-than-expected job numbers for July, revisions to the figures for May and June have sparked controversy over alleged "statistical manipulation." Due to weaker-than-expected employment, there is now speculation that the U.S. Federal Reserve (Fed) may bring forward its interest rate cuts.
Employment Data Announced at 'Shock' Levels
According to the U.S. Department of Labor's announcement on the 1st (local time), nonfarm payrolls in July increased by only 73,000 compared to the previous month, falling far short of the expert forecast of 106,000. In addition, the job figures for May and June were sharply revised downward from 144,000 and 147,000 to 19,000 and 14,000, respectively. The July unemployment rate rebounded from 4.1% to 4.2%, fueling some concerns about an economic slowdown.
Following the release of the employment statistics, U.S. Treasury yields plunged, the dollar weakened, and all three major stock indices fell, causing significant turmoil in the financial markets. Furthermore, President Donald Trump claimed that the employment statistics had been "manipulated" and dismissed the head of the Bureau of Labor Statistics. In the U.S., concerns have also emerged over the credibility of future statistical data, with some questioning, "How can we trust the numbers going forward?"
Powell Fed's Rate Cut Timing Likely to Be Affected
If this employment report is accurate, it belatedly confirms that the U.S. job market was severely impacted by the tariff announcement in April. Based on the inaccurate employment report, President Trump took an even tougher stance on tariff policy, and the Fed missed the optimal timing for a rate cut. The problem is that, starting this month, higher tariff rates will be applied than before. Some companies will find it difficult to fully pass on tariffs to prices, and may respond by reducing employment, which could accelerate the rise in the unemployment rate.
At the July FOMC meeting, the Fed's decision to maintain its benchmark interest rate was based not only on "inflation uncertainty" but also on "solid employment conditions." To avoid triggering a rise in the unemployment rate, at least 80,000 new jobs per month are needed. According to the previously announced figures, the three-month average for new jobs from April to June was about 150,000. At the time, the Fed judged that the current interest rate level was not causing an increase in unemployment, and wanted to further assess the impact of tariffs. However, with the revised employment data, it has now been revealed that new job creation in May and June was less than 20,000.
Lee Hayeon, an economist at Daishin Securities, analyzed, "Despite margin pressure from tariffs, it is becoming difficult to raise sales prices due to weakening consumer demand, which could lead to a vicious cycle resulting in layoffs. Of course, the current employment situation does not indicate a U.S. economic recession, and the U.S. still has ample room for monetary policy maneuvering. However, considering that tariff burdens will once again increase from August, a rapid policy shift to avoid a recession is expected."
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