Labor Department data released Friday showed that the US economy slowed in July and unemployment rose more than was expected. US equities plunged and odds for a rate cut were increased.
In July, unemployment increased to its highest rate since October 20,21. Nonfarm payrolls increased by 114,000 in July, falling short of analysts’ expectations for 185,000.
Stocks initially fell sharply, with the S&P 500 and Nasdaq Composite indexes losing 2.4% and 3.1%, respectively, over the day an hour after the report was released. Later in the day, both indexes made modest gains. The S&P 500 was trading 2.1% lower and the Nasdaq Composite was down 2.5% at time of publication.
Also, crypto currencies saw sharp declines on Friday morning. Bitcoin fell by more than 4 percent, while ether dropped close to 6 percent in the first 90 minutes after the publication of this report.
Both cryptocurrencies have also recovered slightly in the same way as stocks. Bitcoin is now around $63,500. The price is still about 2.8% below its intraday peak, but it’s up around 1% in the last 24 hours. Ether hovered at $3,000 as of the time of publishing, approximately 1.7% more than its intraday’s low.
Steve Clayton said that Friday’s release coincides in a time of heightened volatility for US shares. The markets are further affected by this.
“The US jobs release came after sharp falls in tech stocks, a 6% drop in the Japanese market and mounting concerns over the underlying strength of the US economy,” Clayton said “Today was not the day for more bad news to arrive, but arrive it did.”
The rate of unemployment is now higher than the Federal Open Market Committee’s projections. Central bankers had predicted that unemployment would be between 4% to 4.1% at the end of 2024.
Sahm rule indicator for recession is flashing in red. Established by Claudia Sahm, a former Fed economist, the Sahm rule states that the US economy is headed for a downturn when the three-month moving average of the national unemployment rate is higher than the lowest three-month moving average in the past year, by 0.5 or more. The figure was 0.53 as of Friday.
Sahm cautioned on Friday about the fact that, in today’s post-pandemic economy, data may be skewed due to supply chain disruptions as well as government stimulus.
As she said on Bloomberg Television, Friday morning, the increase in immigration may also influence unemployment statistics.
“Factors like increased labor force participation, particularly among immigrants, and the ongoing mismatch between job seekers and available positions have also contributed to the unemployment situation,” Jag Kooner said that Bitfinex’s head of derivatives, Jag Kooner. “These complexities, combined with an inverted yield curve — another recessionary signal — have created an atmosphere of uncertainty.”
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