Weak Jobs Data Masked by Falling Unemployment

• July payrolls fell by 23,000 (vs. est. +80,000), with significant downward revisions of 103,000 for the prior two months.
• The fall in the unemployment rate to 4.1% was primarily due to a shrinking labor force, particularly younger workers (ages 16-24), rather than strong job creation.
• Key sectors showing weakness include local government education and leisure/hospitality, while construction (driven by data centers) was the only strong sector.
• Bloomberg Economics expects a modest CPI print next week, with year-over-year core CPI potentially falling to 2.4%, the lowest in over five years.
• The economist suggests that these weak labor market and inflation signals could vindicate a 'no hike' position for the Fed in September.

The July jobs report showed an unexpected decline in payrolls and a falling unemployment rate driven by reduced labor force participation, not job growth. This, coupled with persistent downward revisions to past payroll data and an expected soft CPI print, suggests a cooling labor market and easing inflation, potentially reducing pressure on the Fed to hike rates in September.