Core Viewpoint - The Federal Reserve official Williams describes the labor market as experiencing a "moderate and gradual cooling," while still remaining robust overall [1] Labor Market Conditions - The unemployment rate slightly increased to 4.2% in July from 4.1% in June, indicating a marginal rise in joblessness [1] - The downward revision of employment growth data for May and June is highlighted as a significant focus of the recent report [1] Interest Rate Outlook - Williams expresses caution regarding the market's high expectations (up to 80%) for a rate cut in September, indicating that he does not fully endorse this outlook [1] - He acknowledges the challenges faced by market participants and policymakers alike in interpreting signals from the economy [1] Economic Growth Projections - The expectation is set for the U.S. economic growth to slow to approximately 1% this year, with a potential recovery anticipated by 2026 [1]

Core Insights - The U.S. job growth has significantly slowed down over the past three months, with an increase in the unemployment rate, indicating a cooling labor market amid widespread economic uncertainty [1] Employment Data - According to the U.S. Bureau of Labor Statistics, non-farm payrolls increased by 73,000 in July, with the previous two months' data revised down by nearly 260,000 [1] - The average non-farm employment growth over the past three months is only 35,000, marking the worst performance since the COVID-19 pandemic [1]

Group 1 - The U.S. labor market showed significant cooling in July, with non-farm payrolls increasing by only 73,000, the smallest gain since October of the previous year, and well below the market expectation of 110,000 [3][4] - The revisions for previous months were substantial, with May's job additions revised down from 144,000 to 19,000 and June's from 147,000 to 14,000, resulting in a total downward revision of 258,000 jobs for May and June combined [4] - The unemployment rate in July rose to 4.2%, aligning with market expectations, while the average hourly earnings year-over-year increased to 3.9%, the highest since March, slightly exceeding the expected 3.8% [4] Group 2 - The healthcare sector led job growth in July, adding 55,000 new positions, while the social assistance sector contributed an additional 18,000 jobs [4] - Federal government employment continued to decline, with a reduction of 12,000 jobs in July, reflecting ongoing layoffs in the "government efficiency department" [4] - The report was characterized as a game-changer for the labor market, indicating a rapid deterioration, although it has not yet reached crisis levels [5] Group 3 - Following the employment data release, market expectations for a rate cut by the Federal Reserve in September surged to 73%, up from approximately 40% prior to the non-farm report [5] - The uncertainty stemming from President Trump's tariff policies has led U.S. companies to reduce hiring, with recent increases in tariffs on Canada and other countries contributing to this trend [5] - The report has prompted significant market reactions, including a spike in spot gold prices and a drop in the U.S. dollar index [4]

Core Viewpoint - Eurozone bond yields fell across the board as the market increased bets on a potential interest rate cut by the European Central Bank (ECB) following disappointing U.S. non-farm payroll data [1] Group 1: Market Reactions - U.S. employment growth showed signs of slowing down, with previous values significantly revised down, indicating a notable cooling in the labor market [1] - This development has heightened expectations for a Federal Reserve rate cut next month [1] Group 2: Interest Rate Expectations - The probability of an ECB rate cut by the end of the year has risen to 60%, up from 50% prior to the data release [1] - The likelihood of a rate cut by March 2026 has increased to 80%, compared to the previous 65% [1] Group 3: Bond Yield Movements - The yield on Germany's 10-year government bonds decreased by 1.5 basis points to 2.68% [1] - The yield on Germany's 2-year bonds fell by 4 basis points to 1.91%, having previously reached a high of 1.967% since early April [1]

Core Viewpoint - The U.S. labor market showed significant cooling in July, with employment growth slowing sharply and the unemployment rate rising to 4.2% [1] Employment Data - Non-farm payrolls increased by 73,000 in July, significantly below the expected increase of 110,000 [1] - The June employment figure was revised down from an initial estimate of 147,000 to just 14,000 [1] Unemployment Rate - The unemployment rate rose from 4.1% in June to 4.2% in July, indicating a deterioration in the labor market [1] Federal Reserve Response - The Federal Reserve maintained the benchmark interest rate in the range of 4.25% to 4.50% [1] - Fed Chairman Jerome Powell's comments after the decision diminished market expectations for a return to policy easing in September [1] - Powell described the labor market as being in a "balanced state" with synchronized declines in supply and demand, but acknowledged the dynamic suggests "downside risks" [1]

Core Insights - The U.S. private sector job market showed unexpected growth in July, with ADP reporting an increase of 104,000 jobs, the largest since March, surpassing the market expectation of 75,000 jobs [1][4] - Despite the positive job growth, there is a notable cooling in the overall labor market, as the proportion of consumers finding it "hard to get a job" has reached a near four-and-a-half-year high, coinciding with a rising trend in initial unemployment claims [1][4] Employment Sector Analysis - The most significant feature of the July job market is sectoral differentiation, with leisure and hospitality, as well as financial activities, being the main hiring sectors, while education and health services have seen layoffs for the fourth consecutive month [4] - The construction sector added 15,000 jobs, showing an acceleration from June's 9,000 jobs; manufacturing saw a notable slowdown, adding only 7,000 jobs in July compared to 15,000 in June; trade, transportation, and utilities added 18,000 jobs, up from 14,000 in June; financial services rebounded strongly with 28,000 new jobs, reversing a loss of 14,000 in June [4] - Professional and business services improved slightly from a decline of 56,000 jobs in June, adding only 9,000 jobs in July, indicating that future trends need to be monitored [4] Economic Outlook - ADP's Chief Economist Nela Richardson noted that current hiring and wage data reflect a healthy economic state, with employers gaining confidence in consumer demand; however, private sector hiring remains significantly below last year's average levels, and companies are becoming increasingly cautious in staffing decisions amid heightened policy uncertainty [4] - Initial unemployment claims remain low, but the extended reemployment cycle for unemployed workers indicates a decline in labor market fluidity [4] - The market anticipates that the upcoming U.S. Labor Department's non-farm payroll report will show an increase of 110,000 jobs, with the unemployment rate potentially rising from 4.1% in June to 4.2% in July [5] - Salary growth remains stable, with a 4.4% year-over-year increase for retained employees and a 7% increase for job switchers; the service sector recovery is a primary driver of job growth, although education and health sectors have experienced a net loss of jobs this year [5]

Core Viewpoint - Barclays indicates that while the non-farm employment data appears strong on the surface, deeper details reveal signs of a cooling labor market, increasing the likelihood that the Federal Reserve will remain on hold in July and may not consider rate cuts until December [1] Group 1: Employment Data Overview - In June, non-farm payrolls increased by 147,000, exceeding Barclays' expectation of 100,000 and the market consensus of 106,000 [2] - The three-month moving average reached 150,000, up from 130,000 a year ago [2] - Nearly half of the job growth came from government sectors, with 73,000 new positions, primarily in state government education [3] Group 2: Private Sector Employment - Private sector job growth significantly slowed from 137,000 to 74,000, with service industries contributing only 68,000 jobs [3] - The goods-producing sector added 6,000 jobs, with construction increasing by 15,000, while manufacturing and mining saw declines of 7,000 and 2,000, respectively [3] Group 3: Household Survey Insights - The household survey presents a more complex employment picture, with the unemployment rate dropping by 13 basis points to 4.1%, primarily due to a decrease in the labor force participation rate [6] - The labor force shrank by 130,000, while household employment rose by 93,000 [6] - The broader underemployment rate (U6) slightly decreased to 7.7%, indicating some slack in the labor market [9] Group 4: Wage Growth and Income Trends - Wage growth showed signs of cooling, with average hourly earnings increasing by 0.2% month-over-month and 3.7% year-over-year, down from a 0.4% increase in May [10] - Average work hours declined by 0.1 hours to 34.2 hours, leading to a 0.3% decrease in total hours worked, marking the weakest performance since July of the previous year [13] - The three-month annualized growth rate of wage income fell to 3.0%, halving from the 6.0% growth seen from December to March [15]

Core Viewpoint - Federal Reserve Chairman Powell indicates that while the labor market may be gradually cooling, the strong labor participation rate and good wage growth mitigate concerns about this cooling [1] Group 1 - Powell acknowledges the current uncertainty in the economic outlook remains at a high level, despite some improvements [1] - The labor market conditions, along with reasonable economic growth and gradually declining inflation, lead Powell to prefer waiting for more information before making further decisions [1]

Group 1 - The number of initial jobless claims in the U.S. unexpectedly rose to 247,000, the highest level since October of the previous year, indicating a cooling labor market [1] - The four-week moving average of initial jobless claims also increased to 235,000, marking a new high since October [1] - Employers announced approximately 93,800 layoffs in May, which, despite a decrease from April, remains above the average level of the previous year, particularly in the service and retail sectors [2] Group 2 - The total number of individuals receiving unemployment benefits (continuing claims) slightly decreased to 1.9 million, but remains high compared to the same period last year, suggesting longer reemployment times for job seekers [2] - Major companies, including Microsoft, Disney, and Booz Allen Hamilton, have recently announced layoff plans, driven by factors such as tariff policies, funding cuts, weak consumer spending, and general economic pessimism [2] - Economists expect the upcoming non-farm payroll report to show a decline in new job additions following strong growth in April, while the unemployment rate is anticipated to remain steady at 4.2% [2]

Economic Activity - The latest Beige Book indicates a general slowdown in economic activity across the U.S. since the last report, with half of the regions reporting slight to moderate declines [1][4] - Labor market conditions show a cooling trend, with most regions reporting decreased labor demand, reduced hours, hiring freezes, and plans for layoffs [1][3] Labor Market - Overall employment levels have remained stable, but there is evidence of a shift in labor supply and demand dynamics, with increased job applicants and reduced employee turnover [1][3] - Wage growth continues at a moderate pace, with easing wage pressures, which is a positive sign for alleviating service sector inflation [2][3] Price and Cost Pressures - Prices have risen at a moderate pace, but there are expectations for faster increases in costs and prices in the future, primarily due to higher tariffs [2][4] - Businesses are adopting various strategies to cope with rising costs, including raising prices, compressing profit margins, or adding temporary surcharges [2][3] Sector Performance - Manufacturing reports a general decline in activity, with reduced new orders and increased inventories, influenced by uncertainty and tariffs [3][4] - Consumer spending shows mixed performance, particularly weak in non-essential goods, with some consumers making preemptive purchases to avoid future tariffs [3][4] - The real estate sector is experiencing stagnation or decline in residential sales and new construction, with increased inventory and slowing price growth [3][4] Financial Services - Loan demand is generally stable or weakening, with uncertainty suppressing trading activity, while credit standards remain stable or slightly relaxed [3][4] Market Implications - The economic slowdown and corporate profit pressures may pose downside risks for the stock market, while a cooling labor market could signal potential easing [5][6] - In the bond market, the economic slowdown may support lower bond yields, but inflation concerns from tariffs could limit this downward movement [5][6] - Commodity demand may be suppressed due to economic activity slowdown, but supply chain adjustments and trade policy changes could lead to structural impacts [7][8] Uncertainty and Future Outlook - The overarching theme of uncertainty, particularly related to trade policy, is a significant barrier to economic vitality, affecting both corporate decision-making and consumer sentiment [4][8] - The future economic trajectory will largely depend on how these uncertainties evolve and the impact of trade policies [9]