Markets end the day sharply lower after weak jobs report ignites fears of a slowing economy

Traders work on the floor of the New York Stock Exchange during afternoon trading on August 2.

Stocks tumbled Friday as a disappointing jobs report added to fears that the US economy is weakening.

The Dow closed 612 points, or 1.5%, lower, after falling more than 900 points earlier in the session. The S&P 500 lost 1.8% and the Nasdaq Composite declined 2.4%.

The Nasdaq closed in correction territory, or more than 10% off its most recent high on July 10.

CNN’s Fear & Greed Index, which measures seven barometers of market sentiment, fell to a “fear” reading of 27.

The US economy added just 114,000 jobs in July, according to Bureau of Labor Statistics data released Friday. That’s far below economists’ estimates of 175,000 jobs added. The unemployment rate surged to 4.3% from 4.1%, above expectations for it to stay steady.

As stocks settle after the trading day, levels might change slightly.

Traders work on the floor of the New York Stock Exchange during afternoon trading on August 2.

Stocks pared back earlier losses as investors continued reviewing the weaker-than-expected July jobs report.

The Dow fell 741 points, or 1.9%, on pace for its worst daily percentage decline in 2024. The S&P 500 declined 2.2% and the Nasdaq Composite lost 2.7%.

There are few corners of the stock market that weren’t bathed in red Friday.

Stocks tumbled after a weaker-than-expected July jobs report spooked investors. The broad selloff has halted the market’s recent rotation out of Big Tech stocks and into smaller, beaten-down stocks, which came after a batch of cooling inflation reports raised optimism about a September rate cut.

Sam Stovall, chief investment strategist at CFRA Research, said the market may have been “setting itself up for disappointment” with its tech stock fervor, and he sees the selloff as a “normal corrective process.” Only about 8% of the stock market is made up of small- and mid-cap stocks, he notes — a fraction of Big Tech’s outsized weighting and a sign that the rotation would have hit some snags anyway.

“Initially, investors thought well, gee, you know, we can just rotate into mid- and small-cap stocks. … That would be like saying, ‘I think I can drain one of the Great Lakes into my backyard swimming pool.’ That’s not going to happen.”

A trader works on the floor of the New York Stock Exchange on August 1.

After a much-worse-than-expected jobs report Friday, the dominant emotion on Wall Street has been fear.

CNN Business’ Fear & Greed Index, a measure of market sentiment, fell to 26 — close to “Extreme Fear.” It was in “Neutral” territory just one week ago.

To be certain, Friday’s jobs report was bad news for the US economy. But it’s not that bad, economists and analysts say: The US economy remains strong. The market reaction (the Dow tumbled more than 900 points at one point) may be overdone.

“It feels a little panicky,” Truist’s Keith Lerner said. “The market has a lot of things to digest at once. And that makes it hard to get confidence.”

Risks of a recession are rising, said Moody’s Mark Zandi, but he still believes the odds remain low. He said the Federal Reserve may have to consider a half-point rate cut at its next policy meeting, in September, to ensure the economy gets into better shape.

“I do feel like this economy will be able to navigate through this,?but it’s going to be close,” Zandi said. “They’ve got to get moving here.”

Bank of America economist Michael Gapen agreed, saying a so-called soft landing — in which inflation slows without throwing the economy into a recession — remains the most likely outcome.

“There’s a very good chance we can get a soft landing out of this,” Gapen said.

Sen. Elizabeth Warren (D-MA) speaks during a Senate Banking, Housing, and Urban Affairs committee hearing on January 11 in Washington, DC.

One of the biggest Federal Reserve policy opponents in Congress is using Friday’s jobs report as an opportunity to say: “I told you so.”

Massachusetts Democratic Sen. Elizabeth Warren said Friday that the Fed should have cut rates sooner — as she’s been calling for over the past year or so. Warren has called repeatedly for Fed Chair Jerome Powell’s ouster, and she has said that the Fed’s war on inflation has come at the expense of jobs and prosperity.

“Fed Chair Powell made a serious mistake not cutting interest rates,” Warren posted on X Friday, referring to the central bank’s most recent policy meeting, which concluded on Wednesday. “He’s been warned over and over again that waiting too long risks driving the economy into a ditch. The jobs data is flashing red.”

Powell has shot back at Warren and other progressives who have decried the Fed’s interest rate hikes, which have kept rates at a 23-year high for about a year. Powell has argued that the job market has been strong, and though millions of people may be out of work, hundreds of millions of people are struggling with rising prices.

But Friday’s jobs report suggests the Fed may have kept rates too high for too long.

“Powell needs to cancel his summer vacation and cut rates now — not wait 6 weeks,” Warren warned.

U.S. Federal Reserve Chair?Jerome?Powell?speaks during a press conference in Washington following a two-day meeting of the Federal Open Market Committee on interest rate policy on July 31.

Chicago Federal Reserve President Austan Goolsbee said Friday the current US unemployment rate of 4.3% is something the central bank “has to respond to,” implying it could merit cutting interest rates.

That’s because the new unemployment rate is above what Fed officials believe is the ideal long-term jobless rate for the economy.

But Goolsbee, who voted at the Fed’s meeting this week, said the July jobs report alone isn’t causing him to believe officials need to cut rates.

“The trends show inflation coming down across the board, multiple months in a row, they show the labor market cooling,” Goolsbee said in an interview with Bloomberg TV on Friday.

Prior to Friday, most of the big banks on Wall Street were in agreement that the Federal Reserve would cut interest rates at some point this year, with September being the most likely option.

But there’s been an open question of whether the Fed would cut rates multiple times this year as well as the size of the potential cuts.

After Friday’s disappointing jobs report though, more economists from the nation’s biggest banks are converging around there being multiple cuts this year, possibly kicking off with a larger than previously anticipated half-point cut in September.

Here’s what they’re predicting:

Commuters wait to ride on a Massachusetts Bay Transportation Authority subway on July 8 in Boston.

Up until June, when the unemployment rate rose to 4.1%, the nation’s jobless rate was on a 30-month streak of being at or below 4%.

Economists expected it to hold steady, but instead it marched higher for the fourth-consecutive month and landed at 4.3%.

Put in historical context, 4.3% ain’t too shabby, but the rate at which it’s been escalating as of late makes it more uncomfortable, said Elizabeth Crofoot, senior economist at labor analytics firm Lightcast, in an interview with CNN.

The increase triggers the “Sahm rule,” an indicator that a recession is imminent or underway if the three-month moving average of the unemployment rate rises by 0.5 percentage points or more relative to its prior 12-month low.

However, plenty of rules have been broken in this post-Covid economy, and even Claudia Sahm, the economist who created the rule, cautioned this week that a triggering may not equal a recession.

Crofoot held a similar cautionary stance on Friday: “I’m very hesitant to use the ‘R’ word, because I don’t think we’re there; but this is something to keep our eye on.”

The recession bells aren’t ringing for Crofoot, Tedeschi and other economists because the economy is still growing (a robust 2.8%, in fact,?during the second quarter); consumers are still spending; labor force participation remains high; and, most importantly, layoffs aren’t mounting.

The health care and social assistance industry continued to lead the job growth in July, accounting for more than half of the monthly gains by adding 64,000 jobs.

Construction (+25,000), leisure and hospitality (+23,000), and government (+17,000), saw the next-highest gains.

However, job creation across other industries was languid.

While the US labor market remains in a historic period of expansion — July marks the 43rd consecutive month of job growth, the fifth-longest on record — much of the gains seen in the past two years have not been broad-based, heightening concerns among labor economists that the strength of a few is masking weakness among the many.

Jobseekers and representatives at a job fair at Brunswick Community College in Bolivia, North Carolina, on April 11.

July’s jobs total may have a been a shocker, but it’s not the lowest monthly gain notched this year.

That happened in April, when downward revisions resulted in 108,000 net jobs created.

July’s 114,000 total is, however, the second-lowest monthly gain since December 2020.

“We’re in OK territory,” Elizabeth Crofoot, senior economist at labor analytics firm Lightcast, told CNN. “It’s when you get below 100,000 when I would start to get worried.”

Traders work on the floor of the New York Stock Exchange during morning trading on July 31.

The Wall Street selloff accelerated Friday morning as investors continued to review the weaker-than-expected July jobs data.

The Dow slid 934 points, or 2.3%. The S&P 500 fell 2.6% and the Nasdaq Composite lost 3.1%.

That puts the Nasdaq in correction territory, or more than 10% off its most recent high on July 10.

Investors were spooked Friday morning after the latest labor report revealed that the unemployment rate ticked higher than expected in July.

CNN’s Fear & Greed Index, which measures seven barometers of market sentiment, fell to a “fear” reading of 26, on the edge of entering “extreme fear” territory.

The Cboe Volatility Index, or VIX, which measures bets on expected stock market volatility, jumped to 28.

Americans’ paychecks last month grew at the slowest annual rate since May 2021.

US workers made $35.07 an hour, on average, in July. That’s up 8 cents, or 0.2%, from June, a relatively weak monthly gain and a far cry from the robust monthly pace of wage growth seen in recent years. From a year earlier, average hourly earnings were up 3.6% in July, which was the weakest annual rate since May 2021. The?Employment?Cost Index, a more comprehensive gauge on employers’ labor costs released earlier this week, showed a similar trend took place from April through June.

The latest wage data shows that a steady downward trend remains firmly in place. This also adds to evidence that America’s job market is experiencing a broad slowdown, whether you look at monthly job gains,?unemployment?or wage growth. The job market was running red-hot when it rebounded from the Covid-19 pandemic as employers hiked wages to address hiring difficulties, which were thought to have been a source of?inflation?pressure.

This recent slowdown means there’s less upward pressure on prices and serves as yet another data point nudging the?Federal Reserve?to cut interest?rates?in September.

Annual wage growth is still stronger than in pre-pandemic times — for now.

People walk past the New York Stock Exchange?on July 24.

The job market is weakening. Markets are tumbling. And Wall Street is betting the Federal Reserve will be forced to come to the rescue.?

That ominous backdrop is suddenly raising the specter of a recession.

But it’s far too soon to know whether this is just a growth scare or something worse. One bad jobs report does not mean a recession is inevitable.

The economic jitters do suggest the Fed may have committed another policy mistake. The Fed was too slow in 2021 to respond to inflation and now Chair Jerome Powell and his colleagues may wish they had responded sooner to cracks in the job market.

But don’t dismiss the firepower the Fed has now to prevent a slowdown from morphing into a recession. With rates still at 23-year highs, Fed officials have plenty of room to revive confidence in the economy.

A man looks at a display board showing the morning numbers on the Tokyo Stock Exchange along a street in Tokyo on August 2.

Japanese stocks tanked Friday as investors fretted about the health of the US economy and braced for further interest rate hikes from the Bank of Japan.

The Nikkei 225, Japan’s benchmark index, closed down 5.8% —?the index’s?biggest daily drop since March 2020 when the world was in the early grip of the coronavirus pandemic, and its lowest level since January.

Japan’s Topix index also plunged 6%, notching its biggest one-day fall since 2016, the Financial Times reported.

Traders were rattled by the release of US data showing an uptick in the number of people claiming first-time unemployment benefits. Stock markets elsewhere in Asia and in Europe also fell across the board on Friday after the data pointed to weakness brewing in the world’s biggest economy.

On Wednesday, the Bank of Japan raised interest rates by 0.15%, to a level of 0.25%, in?its second hike this year?and announced plans to taper its bond buying. Traders expect more rate hikes to come later this year as the central bank tries to contain inflation.

U.S. Federal Reserve Chair?Jerome?Powell?holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy on July 31.

July’s jobs report, which showed that the US unemployment rate jumped to 4.3% from 4.1% in June, all but solidifies a September rate cut from the Federal Reserve.

The question now is: How big will that cut be?

Before Friday, investors were betting the Fed would opt for a quarter-point cut, the typical cadence interest rate moves follow. But now the majority of investors are banking on a larger half-point cut, according to Fed funds futures.

If that happens, that would mean central bankers view the current state of the labor market as a substantial risk that’s worthy of acting urgently to stave off further damage.

Traders work on the floor of the New York Stock Exchange on August 1.

US markets fell on Friday morning following a weaker-than-expected jobs report. The new data stoked recession fears as investors worry that the numbers show a rapidly softening economy.

Big Tech led losses after Amazon missed on second-quarter earnings. Shares of the company fell 10%. Shares of Intel, meanwhile, fell 28% after the company lowered its forward guidance. Microsoft and Nvidia shares were also lower.??

The tech-heavy Nasdaq is on track to end the week in a correction, down more than 10% from recent highs.

Treasury yields, meanwhile, fell as investors exited stocks and moved towards bonds in search of a safe haven.?

The Dow was 497 points, or 1.2%, lower.

The S&P 500 fell by 1.6%.

The Nasdaq Composite lost 2.6%.

The narrative has shifted.

For years, America’s economic problem was inflation. Jobs were booming. Consumers were irate about surging prices — but if you wanted a job in America, most people could get one.

Friday’s much-worse-than-expected jobs report made clear that a tectonic shift has taken place in the US economy: Hiring is slowing. But prices are increasingly under control.

Inflation is the biggest reason why so many Americans have negative feelings about the US economy, even as it continues to grow strong on the back of strong consumer spending. A slowing pace of job growth and a rising unemployment rate (it’s at its highest level in nearly three years) won’t help matters — particularly if America starts shedding jobs in the coming months.

If this keeps up, Vice President Kamala Harris could have a more difficult job to do as the likely Democratic nominee tries to persuade Americans that the economy under the Biden-Harris administration is working for average people.

But the hiring slowdown does not necessarily mean America is entering a recession. Growth remains strong, as does consumer spending — which makes up more than two-thirds of the US economy.

Still, this is an unwelcome change and a new challenge for the Federal Reserve and policymakers.

There was already little doubt that the?Federal Reserve?would roll out the first interest rate cut in September. The latest?jobs?report showing that the?unemployment?rate rose even higher last month just cemented that, and it’s even possible now that the?Fed?could cut?rates?by even more than previously expected.

In addition to controlling?inflation, the?Fed?is also tasked by Congress to keep the labor market intact, and the recent runup in?unemployment?is a concerning sign for the?Fed.

Fed?Chair Jerome?Powell?said Wednesday that officials don’t want to see a “material” weakening in the job market. The current?unemployment?rate is still relatively low, but seems to have caught some upward momentum.

This development improves the odds of a half-point cut in September, though economists and traders still mostly expect that first rate cut to be a quarter-point in size, according to the CME FedWatch Tool.

Generally, the?Fed?makes its decision congruent with what’s going on with?inflation?or the job market. In summer 2022, when?inflation?was running at 40-year highs, the?Fed?was hiking by three-quarters of a point, and during the Great Recession, the?Fed?cut?rates?by three-quarters of a point at several meetings.

There is one more?jobs?report before the?Fed’s September 17-18 meeting, and if unemployment?rises even higher, the central bank may need to cut more aggressively.?

The US Treasury Department building is seen in Washington, DC, on January 19, 2023,

US Treasury yields were already slipping prior to the release of Friday’s jobs report. Yields on 10-year Treasury notes fell below 4% for the first time in nearly half a year.

But in the time since the jobs report was released at 8:30 am ET, yields have dropped even further, to around 3.85%. The fall in yields reflects investors’ growing belief that the Federal Reserve will not only cut interest rates at its next meeting in September but that it will opt for an even larger half-point cut.

For borrowers getting slammed by higher interest rates and people shopping for a new home, falling yields mean the interest rates they pay will likely go down because they are closely associated with Treasury yields.

US Federal Reserve Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting at the Federal Reserve in Washington, DC, on July 31.

A cautious Federal Reserve kept its target interest rate at a 23-year high at its latest monetary policy meeting this week, despite overwhelming evidence that inflation is in check and growing cracks have been forming in the job market.

Today’s jobs report is the latest piece of evidence that hiring is cooling off in America. The unemployment rate rose to a near-three-year high and the US economy added just 114,000 jobs in July — way below economists’ forecasts.

The Fed is playing a balancing act — what it calls its “dual mandate.” It aims to keep inflation low and job growth high. For several years, as inflation was sky-high and jobs were booming, the Fed focused on hiking rates to combat rising prices.

But inflation is falling and nearing the Fed’s 2% target rate. Meanwhile, the unemployment rate has been steadily rising above 4% after hovering at a half-century low.

Although a number of economists had called on the Fed to cut rates by a quarter-point this week, most expected the Fed to cut in its next meeting to be held in September.

Now, economists are increasingly worried that the Fed acted too late — and the market has priced in a 62% chance that the Fed will cut by an alarming half-point at its next meeting, according to CME.

A growing crowd of economists — among them, former?Fed?Vice Chair Alan Blinder and Nobel prize-winner Paul Krugman — urged the Federal Reserve to cut at this week’s meeting rather than at September’s meeting.

Instead, the central bank opted to keep rates at the highest level in over two decades, while setting the stage for a potential cut at its next meeting in September.

As Blinder put it in his?Wall Street Journal op-ed?this week: “Why wait?”

The argument Blinder and other economists made is: If you’re on track to cut in two months anyway, central bankers should get it out the door sooner rather than later because monetary policy comes with what’s referred to as long and variable lags. In other words, it takes time for the Fed’s actions to be felt across the economy.

Some bruises in the economy were already developing prior to the release of Friday’s jobs report, which showed the nation’s unemployment rate jumped to 4.3%, the highest level since October 2021. Now those bruises are even more noticeable.

Job seekers attends the JobNewsUSA.com South Florida Job Fair held at the Amerant Bank Arena on June 26 in Sunrise, Florida.?

“It looks like the sharper downturn in the labor market that [Federal Reserve Chair Jerome] Powell said they were watching for has just become a reality,” said Chris Rupkey, chief economist at FwdBonds.

“The risks are decidedly to the downside for the labor markets, and rising joblessness could drag the entire economy under. Job losses of this magnitude have never happened outside of recessions,” he wrote in a note Friday.

People pass the New York Stock Exchange on July 30.

Stock futures took a tumble Friday morning after fresh data showed that the US labor market cooled off more than expected last month.

Dow futures fell more than 530 points, or 1.2%. S&P 500 futures lost 1.6%, and Nasdaq-100 futures declined 2.2%

The US economy added just 114,000 jobs in July, according to Bureau of Labor Statistics data released Friday. That’s below economists’ estimates of 175,000 jobs added. The unemployment rate surged to 4.3% from 4.1%, above expectations for it to stay steady.

The US unemployment rate jumped to 4.3% in July from 4.1% in June. The new unemployment rate marks the highest level since October 2021, when the unemployment rate was 4.5%.

This marks the fourth straight month the unemployment rate rose, a sign the US labor market is cooling after a remarkable stretch lasting several years after the pandemic.

The US labor market cooled off significantly more than expected last month, underscoring concerns that the economy has slowed down too quickly and could lead to a recession.

Businesses added just 114,000 jobs in July, according to Bureau of Labor Statistics data released Friday and the unemployment rate surged to 4.3% from 4.1%.

Economists were expecting employers to have added 175,000 jobs and for the unemployment rate to remain at 4.1%.?

A pedestrian walks along Wall Street in New York City on June 9, 2023.

?Job opportunities?are slowly disappearing in the US, and hiring has screeched to its slowest pace in a decade (aside from the pandemic plunge). That’s making more workers hold tight to the job they’ve already got.

The good news: Those jobs don’t appear to be nearing the chopping block.

That’s according to the Bureau of Labor Statistics’ latest Job Openings and Labor Turnover?Survey, which showed that the number of open positions edged back slightly in June, hiring activity sank, layoffs were muted and the number of people quitting their jobs hit a three-year low, according to data released Tuesday.

Read more here.

New data from the Employment Cost Index released Wednesday showed that wages and benefits rose more slowly than expected during the second quarter, increasing by the lowest quarterly rate in three years, or just 0.9%.

On an annual basis, compensation costs slowed as well, to 4.1%.

But if Friday’s jobs report does show an increase in these measures, that might not necessarily be of concern, Julia Pollak, chief economist at ZipRecruiter, told CNN in an interview this week.

“That could be obscured by hurricane effects,” she said, referencing?Hurricane Beryl.

“The hurricane may result in a lower average hours number, which could raise wage growth just because that denominator is lower. I would discount any increase in wage growth that is shown Friday, because every other source suggests that wage growth is cooling and posted wages in job listings are slowing.”

Job seekers attends the JobNewsUSA.com South Florida Job Fair held at the Amerant Bank Arena on June 26 in Sunrise, Florida.?

First-time applications for jobless benefits continued to march higher last week, rising to an estimated 249,000 filings, which is the highest since last August, according to Department of Labor data released Thursday.

Continuing claims, which are filed by people who have received unemployment benefits for at least a week or more, increased to 1.877 million, the highest since November 2021.

While the increase seems concerning, economists say it’s less worrisome than it appears — at least for now — because layoffs aren’t mounting.

A company advertises to job seekers during the JobNewsUSA.com South Florida Job Fair held at the Amerant Bank Arena on June 26 in Sunrise, Florida.

The US job market is in a period of historic growth. It’s the fifth-longest period of employment expansion on record.

However, the lion’s share of the credit during much of that time goes to only a couple of industries: health care, government and (until just recently) leisure and hospitality.

In short, the employment gains haven’t been broad-based. Instead, the overall numbers are reflective of a “rolling recession,” where sectors experience downturns and recoveries at different times.

“This is an unusual state of affairs where the aggregate numbers look pretty strong, but they’re really being boosted by the unusually strong government and health care numbers, which are masking the unusual weakness elsewhere,” said Julia Pollak, chief economist at ZipRecruiter.

“I think it’s the major reason why the aggregate figures look so strong and yet people feel so bad,” she added.

“Most people in this country are not working in health care or a police department and can’t easily switch into those kinds of jobs. … These averages can look quite rosy but mask the very real challenges and struggles of business owners and job seekers.”

A We Are Hiring sign advertising job openings is viewed outside of a store on July 10 in Boston.

Economists expect that Friday’s July jobs report will show a net gain of 175,000 jobs — a touch below the average for the past three months — and for the unemployment rate to hold steady at 4.1%, according to FactSet estimates.

The Federal Reserve isn’t expected to start cutting rates until September at the earliest, but Friday’s jobs report should provide some key insight into whether the labor market has enough gas in the tank to stay on cruise control.

US investors are heading for the nearest exit — fast.

Stocks were set to tumble again Friday, dragged down by fears that cracks are forming in the American economy and concern that all the money investors poured into tech stocks, fueled by the AI boom, may have been overdone.

Dow futures fell 400 points, or 0.1%. S&P 500 futures were down 1.2% and Nasdaq futures were 1.8% lower.

Amazon and Intel reported dreadful earnings?Thursday night, and their outlooks were equally miserable. The transition to AI has proven costly while its prospects remain uncertain.

Fear is the dominant emotion on Wall Street at the moment: CNN Business’ Fear & Greed Index, a measure of market sentiment, fell solidly into “fear” mode after holding in “neutral” last week.

Those fears extended globally, with Japan’s Nikkei 225 plunging 5.8%?Friday, the index’s?biggest daily drop since March 2020.

On Thursday, the stock market underwent a bit of a reset, with the?Dow falling more than 600 points?as America may be entering a new phase of the?economy?— a slowdown in hiring. The broader?S&P 500 tumbled?1.5% and the tech-heavy Nasdaq Composite dropped a stunning 2.5%.

Here’s what Wall Street is looking for in the July jobs report.

A waiter wearing a protective mask serves drinks outside a restaurant on July 21, 2020 in New York City.

The pandemic threw the US job market into chaos, but four years later, things finally seem to be back to normal.

Federal Reserve Chair?Jerome Powell said as much?Wednesday: “A broad set of indicators suggest that conditions in the labor market have returned to about where they stood on the eve of the pandemic: strong, but not overheated.”