Wall Street posts worst week in over a month amid bond sell-off, rising oil prices
Investing.com -- The Federal Reserve is likely to weigh next week’s inflation data more heavily than Friday’s weak jobs report, according to Bank of America, which called the July employment figures "a bit dovish on net" but not enough to change its call for a Fed rate hike starting in September.
"The Jul CPI report is a bigger event than today’s jobs numbers,” BofA strategists led by Aditya Bhave said in a note.
U.S. nonfarm payrolls fell by 23,000 in July, following a combined 103,000 in downward revisions to the prior two months. Private payrolls rose by 30,000. Wage growth came in well below expectations, up just 0.1% month-over-month and 3.2% year-over-year, while the unemployment rate declined to 4.1%.
The payroll miss was concentrated in local government education services, down 50,000, and leisure and hospitality, down 40,000 — the latter’s third decline in four months, which BofA linked to higher gas prices weighing on recreational travel. Financial services fell 14,000, while construction added 22,000 jobs and professional and business services rose 18,000.
The drop in the unemployment rate came for what BofA called "bad" reasons. Household employment fell by 87,000, household unemployment fell by a larger 178,000, and labor force participation slipped to 61.4%, driven mainly by declines among younger workers.
The strategists described the mix of soft payrolls, falling participation and a lower jobless rate as symptomatic of a negative labor supply shock tied to immigration policy and demographics, though weak wages don’t fit that story, and were "perhaps the most dovish aspect of today’s data."
Still, BofA said the report shouldn’t shift the Fed’s view that the labor market is balanced and not a source of inflationary pressure. Job growth has averaged 30,000 over the past three months, above the bank’s estimated 20,000 breakeven pace, and the unemployment rate sits 0.2 percentage point below the bottom of the Fed’s June forecast range for year-end 2026.
Markets responded by pricing out five basis points of rate cuts by year-end. BofA is holding to its forecast of a 75-basis-point Fed hike starting in September, arguing the central bank will stay more focused on inflation than labor.
