Job growth came in at 114,000 in July, which was less than expected, as the unemployment rate rose to 4.3%.

U.S. job growth slowed more than expected in July and the unemployment rate rose, raising fears of a deep recession, the Labor Department reported Friday.

Nonfarm payrolls grew by just 114,000 for the month, down from the 179,000 revised in June and below the Dow Jones estimate for 185,000. The unemployment rate rose to 4.3%, the highest since October 2021.

Average hourly earnings, a closely watched measure of inflation, increased 0.2% for the month and 3.6% from a year ago. Both figures were below the respective estimates of 0.3% and 3.7%.

Stock market futures added to losses after the report as Treasury yields fell.

The labor market has been a pillar of economic strength but has recently shown signs of strain, with July’s payrolls increase below the 215,000 average over the past 12 months.

“The temperature may be sweltering across the country, but there’s no summer heat for the job market,” said Becky Frankiewicz, president of career agency ManpowerGroup. “With all the cooling, we lost most of the gains we saw from the first quarter of the year.”

From a sector perspective, health care also led to job creation, adding 55,000 to payrolls. Other beneficiaries included construction (25,000), government (17,000), and transportation and warehousing (14,000). Recreation and hospitality, another boom in the last few years, added 23,000.

The information services sector reported a loss of 20,000.

While the survey of areas used for the number of headline payrolls was disappointing, the survey of households was even more so, with growth of only 67,000, while the number of unemployed people increased by 352,000 . The participation rate as a share of the working-age population rose to 62.7%.

The report adds to recent mixed signals about the economy and financial markets about how the Federal Reserve will respond.

Although markets on Wednesday were buoyed by signs from the Fed that interest rate hikes could come as soon as September, that quickly turned into despair when economic data on Thursday showed an unexpected jump in requests for of unemployment benefits and a significant decline in the manufacturing sector.

That triggered the worst sell-off of the year on Wall Street and renewed fears that the Fed might wait too long to start cutting interest rates. Easing wage rates could help policymakers feel more confident that inflation is returning to their 2% target.

A rise in the unemployment rate activates what is known as Sahm’s Law, which states that the economy is in recession when the three-month average of the unemployment rate is more than half a percentage point higher than the previous month. 12 lower. In this case, the unemployment rate was 3.5% in July 2023 before it began to rise slowly. The three-month unemployment rate rose to 4.13%.

“The current labor market picture is consistent with a recession, not necessarily a recession,” said Jeffrey Roach, chief economist at LPL Financial. However, early warning signs suggest further weakness.

Roach indicated that the number of people working part-time for economic reasons rose to 4.57 million, an increase of 346,000 to the highest level since June 2021.

Another measure of unemployment that includes discouraged workers and those working part-time jobs for economic reasons increased by 0.4 percentage points to 7.8%, the highest number since October 2021.

Long-term unemployment also rose. Those who reported being unemployed for 27 weeks or more were 1.54 million, the most since January 2022.

Wall Street was still looking for a modest gain from the July earnings report, partly due to concerns about growth but also the residual effects of Hurricane Beryl. The hurricane has devastated parts of Texas including the city of Houston.

Despite concerns about the state of economic growth, Fed Chairman Jerome Powell on Wednesday expressed confidence in the “solid” economy and said that easing inflation data raised confidence that the central bank could cut soon.

Markets are fully priced in for a rate cut of at least a quarter at each of the Fed’s three remaining meetings this year. There is an increasing likelihood that the Fed will go beyond the traditional quarterly rate cut.

“While the labor market has been remarkably stable over the past two years of high interest rates, it is important that the Federal Reserve stay ahead of any slowdown in the labor market. by continuing its expected September rate,” said Clark Bellin, chief investment officer. officer of Bellwether Wealth.

Correction: The forecast for average hourly earnings was for a 0.3% increase for the month. An earlier version missed the percentage.