The U.S. labor market shows signs of fatigue! In July, non-farm payrolls unexpectedly decreased by 23,000, while the data for May and June was significantly revised downward. Expectations for a rate hike by the Federal Reserve have cooled.

In July, the U.S. non-farm payrolls unexpectedly declined, with substantial downward revisions to the previous two months, indicating that after showcasing unexpected resilience earlier this year, the U.S. labor market is facing new challenges. This weak employment data is raising investor concerns about the U.S. labor market and could complicate interest rate decisions for the Federal Reserve, which is trying to balance employment and inflation. Data released by the U.S. Department of Labor on Friday showed that non-farm employment decreased by 23,000 in July, significantly worse than the expected gain of 80,000. Meanwhile, the number of new jobs added in May was revised down from 129,000 to 63,000, and the number for June was revised down from 57,000 to 20,000; after revisions, the combined new jobs for May and June were 103,000 lower than previously reported. The unemployment rate fell from 4.2% in June to 4.1% in July, the lowest level since June 2025 and below the market expectation of 4.2%. The labor force participation rate continued to decline, dropping from 61.5% in June to 61.4% in July. Although the unemployment rate remains low, this is largely due to a significant number of workers exiting the labor market rather than solid employment conditions. In terms of wage growth, the average hourly wage increased by 0.1% month-on-month in July, lower than the market expectation of 0.3% and the 0.3% increase in June; the year-on-year growth was 3.2%, also below the expected 3.5% and June's 3.5%. Specifically, the decrease in July's non-farm employment was mainly driven by layoffs in government sectors, leisure and hospitality, and retail. For the second consecutive month, the private sector added 30,000 jobs, with the healthcare and social assistance sector being the main driving force. Local government employers cut nearly 60,000 jobs, mostly from the education sector. Many teachers temporarily leave the employment statistics during the summer break and return at the beginning of the new school year, leading to significant fluctuations in employment data in this field. Meanwhile, the number of federal government jobs also declined. Employment in the leisure and hospitality sector fell to its lowest level in nearly a year, with restaurants and bars cutting staff, indicating that the FIFA World Cup, which ended on July 19, did not boost employment growth as many had anticipated. Employment numbers in manufacturing and construction continued to rise. Many economists point out that the surge in data center construction could become a significant driving force behind labor demand growth in the construction industry by 2026, even as residential construction remains constrained by high interest rates. Employment in the financial services sector dropped to its lowest level in four years. This sector is a significant source of white-collar jobs, which are considered among the most vulnerable to the effects of artificial intelligence (AI) proliferation. This latest employment report suggests that under the pressures of rising prices and uncertainties brought about by conflicts in the Middle East, the U.S. labor market may be beginning to weaken. Despite consumer demand still showing resilience, prompting some employers to continue hiring, signs of cooling in the labor market are becoming evident. It is worth noting that this weak non-farm employment data may prompt the Federal Reserve to delay its rate hike plans. Following the data release, the U.S. dollar index (DXY) dipped nearly 30 points to 99.67. The three major U.S. stock index futures saw their gains expand. Spot gold surged approximately $40 to $4,351.43 per ounce; spot silver rose over $1 to $64.72 per ounce. The two-year U.S. Treasury yield, sensitive to short-term monetary policy changes by the Federal Reserve, fell by 8 basis points to 4.16%; the 10-year Treasury yield dropped 6 basis points to 4.62%. Pricing in the U.S. interest rate futures market indicates that an interest rate hike of only 28 basis points is expected by December, down from 32 basis points before the non-farm payroll data was released. After the July non-farm report, investors are shifting their focus to the U.S. Consumer Price Index (CPI) data for July, which will be released next week, to assess what actions the Federal Reserve might take in September.