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Sharp slowdown in US job growth boosts unemployment rate to 4.3%

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By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. unemployment rate jumped to near a three-year high of 4.3% in July amid a significant slowdown in hiring, heightening fears the labor market was deteriorating and potentially making the economy vulnerable to a recession.

The increase in the unemployment rate from 4.1% in June marked the fourth straight monthly increase, the Labor Department reported on Friday.

Its rise from a five-decade low of 3.4% in April 2023 to now the highest level since September 2021 all but guarantees a September interest rate cut from the Federal Reserve, with economists calling for a 50 basis point reduction in borrowing costs. They argue that the U.S. central bank is most likely behind the curve in easing monetary policy.

The sharp slowdown in the labor market had been flagged for a while in sentiment surveys and a rise in the number of people on unemployment benefits. The Fed’s rate hikes in 2022 and 2023 have weighed on demand for labor, with government data this week showing hires in June were the lowest in four years.

The employment report, which also showed the increase in annual wages last month was the smallest in more than three years, prompted some Wall Street institutions, including Bank of America Securities, to pull forward their rate cut expectations to September from December. Goldman Sachs now anticipates three rate cuts this year instead of only two before the data.

“If Fed officials had seen this report, they would have cut rates by 25 basis points this week,” said Brian Bethune, an economics professor at Boston College. “There is absolutely no justification for continuing to exert an elevated level of monetary restrictiveness on the economy.”

Nonfarm payrolls increased by 114,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said. That was well below the 215,000 jobs per month added over the last 12 months, and the at least 200,000 that economists say are needed to keep up with growth in the population, accounting for the recent surge in immigration.

Economists polled by Reuters had forecast payrolls would advance by 175,000 jobs. The establishment survey, from which payrolls are counted, also showed the economy created 29,000 fewer jobs in May and June than previously reported.

The BLS said Hurricane Beryl, which slammed Texas during the survey week of the July employment report, had “no discernible effect” on the data.

The household survey, however, showed 436,000 people reported that they could not report to work because of bad weather last month, the highest on record for July. There were 249,000 people on temporary layoff last month.

The average workweek fell to 34.2 hours from 34.3 hours in June, also suggesting that Beryl had some impact on the labor market. But construction payrolls increased as did leisure and hospitality employment, which would weaken the weather argument.

The healthcare sector continued to lead employment gains, with payrolls rising by 55,000 jobs. Construction payrolls increased by 25,000 jobs, while leisure and hospitality added 23,000 positions.

Government employment rose by 17,000 jobs. There were also employment gains in the transportation and warehousing as well as social assistance sectors.

But information industry payrolls dropped 20,000 jobs. Financial activities lost jobs as did professional and business services, with temporary help services positions – a harbinger of future hiring – declining by a further 8,700.

The breadth of job gains continued to narrow, with 49.6% of industries reporting an increase in employment, down from 56.0% in June.

Fed Chair Jerome Powell told reporters on Wednesday that while he viewed the changes in the labor market as “broadly consistent with a normalization process,” policymakers were “closely monitoring to see whether it starts to show signs that it’s more than that.”

Stocks on Wall Street fell sharply. The dollar dropped to a four-month low against a basket of currencies. U.S. Treasury prices rose, with the yield on the benchmark 10-year note falling to its lowest since December.

WAGE GROWTH COOLS

The Fed on Wednesday kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been for more than a year but opened the door to reducing borrowing costs as soon as its next meeting in September. Financial markets and economists are also expecting rate cuts in November and December.

Average hourly earnings rose 0.2% last month after climbing 0.3% in June, likely impacted by a calendar quirk as the survey week in July did not include the 15th.

In the 12 months through July, wages increased 3.6%, the smallest year-on-year gain since May 2021 and following a 3.8% advance in June. That left wage growth just above the 3%-3.5% range seen as consistent with the Fed’s 2% inflation target, extending the run of inflation-friendly data.

While the jump in the unemployment rate triggered the Sahm rule on recessions, economists pushed back against concerns that a downturn could already be underway. They argued that the rise in the jobless rate was not because of layoffs, but rather an immigration induced jump in labor supply.

About 420,000 people entered the labor force last month, while household employment only increased by 67,000 jobs. The number of people working part-time for economic reasons increased by 346,000 to 4.6 million. But there were little changes in permanent job losers and long-term unemployment.

© Reuters. Workers weld at a factory floor in Columbus, Ohio, U.S., March 26, 2024.  REUTERS/Carlos Barria

A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, surged to 7.8% after holding at 7.4% for three straight months.

“This doesn’t look like the start of a recession, where demand drops away from supply,” said Tara Sinclair, director of the GW Center for Economic Research. “But it’s still weakness. The Fed has medicine to treat this weakness.”

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Palantir, Anduril join forces with tech groups to bid for Pentagon contracts, FT reports

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(Reuters) – Data analytics firm Palantir Technologies (NASDAQ:) and defense tech company Anduril Industries are in talks with about a dozen competitors to form a consortium that will jointly bid for U.S. government work, the Financial Times reported on Sunday.

The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic and artificial intelligence data group Scale AI, the newspaper said, citing several people with knowledge of the matter.

“We are working together to provide a new generation of defence contractors,” a person involved in developing the group told the newspaper.

The consortium will bring together the heft of some of Silicon Valley’s most valuable companies and will leverage their products to provide a more efficient way of supplying the U.S. government with cutting-edge defence and weapons capabilities, the newspaper added.

Palantir, Anduril, OpenAI, Scale AI and Saronic did not immediately respond to a Reuters request for comment. SpaceX could not be immediately reached for a comment.

Reuters reported earlier this month that President-elect Donald Trump’s planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones and uncrewed submarines.

Musk, who was named as a co-leader of a government efficiency initiative in the incoming government, has indicated that Pentagon spending and priorities will be a target of the efficiency push, spreading anxiety at defense heavyweights such as Boeing (NYSE:) , Northrop Grumman (NYSE:) , Lockheed Martin (NYSE:) and General Dynamics (NYSE:) .

Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin’s F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and submarines.

Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas.

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Weakened Iran could pursue nuclear weapon, White House’s Sullivan says

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By Simon Lewis (JO:)

(Reuters) -The Biden administration is concerned that a weakened Iran could build a nuclear weapon, White House National Security Adviser Jake Sullivan said on Sunday, adding that he was briefing President-elect Donald Trump’s team on the risk.

Iran has suffered setbacks to its regional influence after Israel’s assaults on its allies, Palestinian Hamas and Lebanon’s Hezbollah, followed by the fall of Iran-aligned Syrian President Bashar al-Assad.

Israeli strikes on Iranian facilities, including missile factories and air defenses, have reduced Tehran’s conventional military capabilities, Sullivan told CNN.

“It’s no wonder there are voices (in Iran) saying, ‘Hey, maybe we need to go for a nuclear weapon right now … Maybe we have to revisit our nuclear doctrine’,” Sullivan said.

Iran says its nuclear program is peaceful, but it has expanded uranium enrichment since Trump, in his 2017-2021 presidential term, pulled out of a deal between Tehran and world powers that put restrictions on Iran’s nuclear activity in exchange for sanctions relief.

Sullivan said that there was a risk that Iran might abandon its promise not to build nuclear weapons.

“It’s a risk we are trying to be vigilant about now. It’s a risk that I’m personally briefing the incoming team on,” Sullivan said, adding that he had also consulted with U.S. ally Israel.

Trump, who takes office on Jan. 20, could return to his hardline Iran policy by stepping up sanctions on Iran’s oil industry.

© Reuters. FILE PHOTO: Iranian flag flies in front of the UN office building, housing IAEA headquarters, in Vienna, Austria, May 24, 2021. REUTERS/Lisi Niesner/File Photo

Sullivan said Trump would have an opportunity to pursue diplomacy with Tehran, given Iran’s “weakened state.”

“Maybe he can come around this time, with the situation Iran finds itself in, and actually deliver a nuclear deal that curbs Iran’s nuclear ambitions for the long term,” he said.

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Ukraine says Russian general deliberately targeted Reuters staff in August missile strike

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(Reuters) -Ukraine’s security service has named a Russian general it suspects of ordering a missile strike on a hotel in eastern Ukraine in August and said he acted “with the motive of deliberately killing employees of” Reuters.

The Security Service of Ukraine (SBU) said in a statement on Friday that Colonel General Alexei Kim, a deputy chief of Russia’s General Staff, approved the strike that killed Reuters safety adviser Ryan Evans and wounded two of the agency’s journalists on Aug. 24.

In a statement posted on Telegram messenger the SBU said it was notifying Kim in absentia that he was an official suspect in its investigation into the strike on the Sapphire Hotel in Kramatorsk, a step in Ukrainian criminal proceedings that can later lead to charges.

In a separate, 15-page notice of suspicion, in which the SBU set out findings from its investigation, the agency said that the decision to fire the missile was made “with the motive of deliberately killing employees of the international news agency Reuters who were engaged in journalistic activities in Ukraine”.

The document, which was published on the website of the General Prosecutor’s Office on Friday, said that Kim had received intelligence that Reuters staff were staying in Kramatorsk. It added that Kim would have been “fully aware that the individuals were civilians and not participating in the armed conflict”.

The Russian defence ministry did not respond to a request for comment on the SBU’s findings and has not replied to previous questions about the attack. The Kremlin also did not respond to a request for comment. Kim did not reply to messages sent by Reuters to his mobile telephone seeking comment about the SBU’s statement and whether the strike deliberately targeted Reuters staff.

The SBU did not provide evidence to support its claims, nor say why Russia targeted Reuters. In response to questions from the news agency, the security agency declined to provide further details, saying its criminal investigation was still under way and it was therefore not able to disclose such information.

Reuters has not independently confirmed any of the SBU’s claims.

Reuters said on Friday: “We note the news today from the Ukrainian security services regarding the missile attack on August 24, 2024, on the Sapphire Hotel in Kramatorsk, a civilian target more than 20 km from Russian-occupied territory.”

“The strike had devastating consequences, killing our safety adviser, Ryan Evans, and injuring members of our editorial team. We continue to seek more information about the attack. It is critically important for journalists to be able to report freely and safely,” the statement said.

Reuters declined to comment further on the allegation that its staff were deliberately targeted.

The SBU statement said Kim had been named a suspect under two articles of the Ukrainian criminal code: waging an aggressive war and violating the laws and customs of war.

“It was Kim who signed the directive and gave the combat order to fire on the hotel, where only civilians were staying,” it said.

Evans, a 38-year-old former British soldier who had worked as a safety adviser for Reuters since 2022, was killed instantly in the strike.

The SBU statement gave some details about how the strike had occurred, according to its investigation.

“To carry out the attack, the Russian colonel general involved one of his subordinate missile forces units,” the Ukrainian agency said, adding that the strike was carried out with an Iskander-M ballistic missile.

The SBU did not identify the specific unit.

© Reuters. FILE PHOTO: Reuters safety advisor Ryan Evans holds a cat during a news assignment, as Russia's attack on Ukraine continues, during intense shelling in Kramatorsk, Ukraine, December 26, 2022. REUTERS/Clodagh Kilcoyne/File Photo

Ivan Lyubysh-Kirdey, a videographer for the news agency who was in a room across the corridor, was seriously wounded. Kyiv-based text correspondent Dan Peleschuk was also injured.

The remaining three members of the Reuters team escaped with minor cuts and scratches.

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