US employment figures are much worse than expected, but Wall Street is reacting positively

 Yesterday’s US labour market figures took everyone by surprise and have cast doubt on the Fed’s next moves. In July, employment fell by 23,000, whilst expectations had pointed to an increase of 80,000 jobs, and revisions to the May and June figures have reduced previous estimates by a total of 103,000 jobs. This means that over the last three months, the US economy has created an average of just 20,000 jobs per month, compared with an average of 10,000 in 2025 and 166,000 in the two-year period 2023–2024. Unemployment has, however, fallen from 4.2 per cent to 4.1 per cent because 264,000 Americans have stopped looking for work, and labour force participation has dropped to its lowest level in more than five years (61.4 per cent).

Meanwhile, wages have risen by 3.2 per cent over the past year, compared with inflation of 3.5 per cent. However, a weak labour market reduces the likelihood of monetary tightening, which had seemed increasingly likely following the Fed’s July meeting. Consequently, Wall Street reacted positively and yields on US government bonds were also falling yesterday. In summary, the US economy continues to grow whilst creating very few new jobs.