Weak jobs report fuels more rate-cut speculation
July’s employment report suggests the labor market has been weakening for some time, which could prompt the Fed to cut rates in September — if inflation eases.
Key points:
- The U.S. added 73,000 jobs in July, but the Bureau of Labor Statistics made significant downward revisions to the May and June numbers.
- Soon after the report was released, President Donald Trump fired the head of the BLS, making unsupported claims about political bias.
- Mortgage rates fell slightly on the news, but it's unclear how the Federal Reserve will weigh employment and inflation concerns when it meets next month.
Today's surprising jobs report has increased the chances of a short-term interest rate cut next month, but it remains unclear what that could mean for mortgage rates in the long term.
The U.S. economy added 73,000 jobs in July, according to the Bureau of Labor Statistics' Aug. 1 news release, with the unemployment rate rising slightly to 4.2% — figures that have "shown little change," the BLS stated.
Major revision of spring data
What wasn't expected, however, were the "larger than normal" downward revisions for May and June — a sign that the labor market was weakening earlier than most thought.
The revised May numbers showed 19,000 jobs were added that month, compared to the initial reading of 139,000. The June numbers were revised from 147,000 down to just 14,000.
Another sign of weakness in the job market is the concentration of new hirings in only one sector — health care. Jobs decreased by 11,000 in manufacturing, while construction added just 2,000 jobs in July.
Immediate consequences for BLS leader
The jobs report quickly drew the ire of President Donald Trump, who, without providing evidence, suggested on Truth Social that the data was being "manipulated for political purposes" and ordered the firing of Erika McEntarfer, the Biden-appointed commissioner of the Bureau of Labor Statistics.
"In my opinion, today's Jobs Numbers were RIGGED in order to make the Republicans, and ME, look bad," Trump added in a subsequent post.
McEntarfer had been in her current role since Jan. 2024 and previously served for more than 20 years as an economist with the U.S. Census Bureau and Treasury Department.
Mortgage rates dip
After the jobs report was released, treasury yields fell, which in turn led to a decline in mortgage rates. Mortgage News Daily pegged the 30-year rate at 6.63% on Aug. 1, down from 6.75% the day before.
The combination of slower hiring in July and weaker numbers could mean further modest declines in mortgage rates, said Sam Williamson, senior economist at First American.
"Markets often move ahead of policy, and rising expectations of a cut could begin to lower long-term yields," Williamson said.
Will the Fed cut rates now?
The Federal Reserve held interest rates steady during its July 30 meeting, with Fed Chair Jerome Powell saying the board had made "no decisions about September." The following day, a report showed inflation rising to 2.8% year-over-year, above the Fed's 2% target — making a September cut less likely.
But now the Fed may have to choose between maintaining current rates in an effort to fight inflation, or lowering rates to bolster the economy and the job market. Even if the Fed does cut short-term interest rates, that could end up having the opposite effect on mortgage rates if it causes inflation to spike.
Reading the tea leaves, Realtor.com Chief Economist Danielle Hale noted that during the post-meeting press conference, Powell said the unemployment rate — which remains relatively low — is something they'll be watching closely.
"Even as hiring, or labor demand, has slowed, labor supply has also slowed, keeping the labor market relatively balanced," Hale said, adding that the 3.9% year-over-year rise in wages is a sign the labor market is still stable.