Weak Jobs Data Masked by Falling Unemployment

Summary

Bloomberg Chief US Economist Anna Wong analyzes the July jobs report that showed payroll losses but a falling unemployment rate driven by dropping labor force participation. She highlights that downward revisions and sectoral weaknesses in local government education and leisure/hospitality point to a softer labor market, while construction is the sole bright spot fueled by AI data center build-out. Wong expects a soft CPI print to reinforce the case for the Fed to hold rates steady in September.

• July payrolls declined by 23,000 but unemployment fell to 4.1% due to falling labor force participation, not hiring.
• Participation drop concentrated among 16-24 age group, possibly seasonal but masks underlying labor market softness.
• Economists' breakeven job growth estimates have fallen; Kevin Hassett puts it at 40k, Bloomberg at 55k.
• Local government education sector lost 50k jobs as higher long-term yields cool housing and pressure municipal budgets.
• Leisure and hospitality showed large downward revisions, wiping out pre-World Cup hiring gains and signaling weakness.
• Construction was the only strong hiring sector, driven by data center construction linked to AI.
• Persistent downward revisions suggest initial payroll prints overstate labor market strength.
• Anna Wong expects soft July CPI (core inflation 2.4% YoY) and no Fed rate hike in September.