Market Overview

US Unemployment Drops Back Below 4%, Nonfarm Payroll Falls Far Short Of Expectations

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US Unemployment Drops Back Below 4%, Nonfarm Payroll Falls Far Short Of Expectations

The U.S. hit all marks this month: GDP recorded its strongest growth since 2014, the Federal Reserve reiterated forecasts for continued expansion with its intent to continue raising interest rates and the unemployment rate once more dipped below 4 percent.

What Happened

As projected, the U.S. unemployment rate decreased from 4 percent in June to 3.9 percent in July. The rare sub-4-percent streak began in April.

Notably, nonfarm payroll expanded just 157,000 against a 193,000 estimate and June’s 213,000 precedent.

The slower growth was driven by hiring in professional and business services, manufacturing, health care and social assistance.

Average hourly earnings rose 7 cents to $27.05.

Why It’s Important

Generally, the Fed raises rates in response to explosive economic growth in order to control inflation.

“Though a variety of factors influence the level of unemployment in the economy, the Federal Reserve makes monetary policy decisions that aim to foster the lowest level of unemployment that is consistent with stable prices,” according to the Fed.

At 3.9 percent, the U.S. unemployment rate rests outside the range targeted by the Federal Open Markets Committee. The FOMC considers 4.1 percent to 4.7 percent a normal run rate.

What’s Next

Given the strength of the labor market, among other measures, the Federal Reserve voted this week to maintain rates but indicated an intent to continue tightening them through the year.

July's improved unemployment rate comes as experts are predicting economic challenges as the conditions supporting GDP growth — aggressive federal spending, temporary tax reform benefits and an export boom driven by tariff scares — to dissipate in coming quarters. Growth is expected to slow as trade policies weigh on cross-border sales and international supply chains.

The corporate guidance issued this earnings season also portends pressure on company growth, which creates hiring constraints. The anticipated slowdown could squeeze the labor market and drive the unemployment rate higher, which could inspire the FOMC to reconsider its strategy.

Related Links:

US Unemployment Rate Ticks Under 4% For The First Time Since December 2000

Analysis: The Rarity Of A Sub-4% Unemployment Rate

Jobless Claims Strike Lowest Level Since 1969

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