US unemployment rate climbs to highest level in nearly three years

WEB DESK: Hiring in the United States slowed significantly in July, with the unemployment rate climbing to its highest level in nearly three years.

This signals a more rapid decline in the labour market than anticipated and suggests the Federal Reserve may be on track to reduce interest rates in September, according to Bloomberg.

The Bureau of Labor Statistics reported a rise of 114,000 in nonfarm payrolls last month, following downward revisions to the previous two months’ figures.

This increase fell short of all but one forecast in a Bloomberg survey of economists, marking one of the weakest performances since the pandemic began.

Average hourly earnings also came in below expectations, adding to the disappointing labour market data.

The unemployment rate unexpectedly rose for the fourth consecutive month to 4.3 per cent. This uptick reflects a higher number of people losing or leaving their jobs, rather than an influx of new entrants into the workforce.

Nevertheless, the labour force participation rate saw a boost as previously employed individuals returned to work.

This report compounds a week of underwhelming economic data, which has triggered a stock market decline and reduced Treasury yields.

These figures may lead Federal Reserve officials to believe that their policies are overly restrictive, potentially hampering the labour market more than intended.

In a statement following the central bank’s decision to maintain interest rates at a two-decade high, Fed Chair Jerome Powell emphasised a shift in focus towards mitigating harm to the labour market, given that inflation has significantly decreased from its pandemic peak.

Powell indicated that policymakers are considering rate cuts as early as September, with traders anticipating a possible half-point reduction at that meeting.

Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, remarked, “This environment suggests a quicker pace of rate cuts. The Fed was already inclined towards recession avoidance, or sustaining economic expansion.

With this report, the focus will shift even more towards mitigating inflation risks, which are now considered a distant concern.”

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