Economic Update 8/10/26
Top 5 Takeaways:
The Non-Farm Payrolls Report showed a loss of 23,000 jobs in July.
The Unemployment Rate fell by 0.1% to 4.1% in July.
Private payroll additions matched the June level of 30,000.
Unit Labor Costs rose only 1.3% during the second quarter.
The stable bond market hints the Federal Reserve will keep rates at current levels.
On Friday, we saw the closely watched Non-farm Payrolls Report for July. Unfortunately, the U.S. economy showed a loss of 23,000 jobs during the month, which was well below the forecasted gain of 80,000 net new jobs for July. This was even below the already downwardly revised June report of only 20,000 job additions.
The biggest declines in employment were in public education, which showed a loss of 50,000, and in restaurants and retail. The latter can be somewhat explained by the end of the World Cup Soccer matches held in the United States. However, the loss of education-related positions is somewhat confusing given that the new school year is about to begin.
Looking Ahead
I expect this decline could be reversed when the August numbers are released next month. As we have seen throughout this year, the strongest sector for new job creation was in the health care industry. This sector showed an employment gain of 22,000 during the month.
Another surprise in the release was that the Unemployment Rate in the U.S. fell by 0.1% to 4.1% during July. This was primarily due to a decline in the overall workforce.
The Labor Force Participation Rate declined to 61.4%, its lowest level since 2021. On a more positive note, private payroll additions matched the June level of 30,000.
Manufacturing jobs actually increased by 5,000 and was the third largest gain in the past year. While slightly below the forecasted level, average hourly earnings remained fairly healthy with an increase of 3.2%.
Non-Farm Productivity
We also saw the release of Non-farm Productivity last week. The Productivity gain during the second quarter was 1.4%, which was above the previous quarter’s reading of 0.8%. Unit Labor Costs were also reported last week as rising only 1.3% during the second quarter. Both factors should be viewed in a positive manner in regard to future inflation concerns.
The Fed Faces More Pressure
One last observation concerning economic releases last week: there has been increasing pressure on The Fed to raise rates at their next meeting in September after leaving the Funds Rate unchanged in July. The weaker employment levels in the U.S. should allow The Fed to keep rates steady for now. The new Fed Chairman Warsh seems less willing to give public updates than those previously in his position. However, the bond market is fairly steady today and is also indicating the Federal Reserve will keep rates at current levels.
We have continued to view the equity market in a positive manner and have added new positions in a strategic way. Considering our current portfolios have heavy weightings in technology and energy, our new additions are in other sectors.
Enjoy the week! We are close to the new school year and a pick-up in activity.
