US nonfarm payrolls fall sharply in July

US nonfarm payrolls unexpectedly fell by 23,000 jobs in July, strongly disappointing forecast for payrolls to rise by 80,000, with previous month’s figure being downwardly revised to 20,000 from initially reported 57,000 increase.

Sharp decline in hiring in July, as well as strong downward revision in June and May, revives concerns about condition of US labor sector and raises questions whether the US central bank will raise interest rates in its September policy meeting.

Separate reports showed that unemployment fell to 4.1% in July from 4.2% in June and missed 4.2% forecast, while average earnings rose by 0.1% last month, compared to 0.3% increase in June / forecast.

Participation rate, which tracks the size of employed working age population or those searching for work, declined to 61.4% in July (the lowest in over five years) from 61.5% in June.

Although hiring tends to slow during summer, disappointing July numbers and sharp downward revisions of June/May figures warn that the sector might be facing more serious problems that darken the outlook for the labor sector’s performance in coming months.

The biggest drops in hiring were registered in government education employment, retail trade and financial activities, while situation in manufacturing and construction sectors was almost unchanged and rise in healthcare payrolls slightly brightens overall picture.

Weaker than expected July labor data would contribute to drop in market expectations for Fed rate hike (after the central bank left rates unchanged at 3.50%/3.75% range earlier this week), however next week’s US inflation data could strongly contribute to near-term monetary policy outlook.