Stock Markets
Sharp slowdown in US job growth boosts unemployment rate to 4.3%
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.
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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In other recent news, SOBR Safe, Inc. has been focusing on its financial health and product expansion. The company launched a comprehensive campaign for its non-invasive alcohol detection technology, SOBRsafe™, targeting behavioral health providers. The initiative is expected to reach over 45,000 decision-makers and garner more than 4,000,000 views within a year.
SOBR Safe has also been granted an extension by the Nasdaq Hearings Panel to meet the Nasdaq’s listing requirements. The company, which was previously at risk of delisting, now has until October 23, 2024, to regain compliance with the minimum bid price and stockholders’ equity rules. As part of its efforts to improve its financial position, SOBR Safe secured approximately $2.8 million in gross proceeds through the full exercise of outstanding warrants and debt conversion, eliminating $2.6 million in debt.
In a recent Special Stockholder Meeting, shareholders approved the issuance of up to 20,638,326 shares of common stock upon the exercise of a warrant. This move allows the company to issue additional shares, potentially diluting current ownership percentages. Additionally, SOBR Safe expanded its product portfolio by selling its SOBRcheck and SOBRsure devices to Lake Erie Interlock, Inc., marking an expansion of their alcohol detection technology services in Ohio. These recent developments are part of SOBR Safe’s ongoing efforts to improve its financial health and continue its listing on the Nasdaq.
InvestingPro Insights
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This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
By Tom Sims and Christian Kraemer
FRANKFURT (Reuters) -Germany will not sell any more shares in Commerzbank (ETR:) for now and the bank’s strategy is “geared towards independence,” the country’s Finance Agency said on Friday, in the clearest sign yet that the government doesn’t currently favour a takeover of the nation’s No. 2 lender.
The statement comes days after Italian bank UniCredit announced it had swooped in to buy a 9% stake in Commerzbank to become its second largest shareholder, and its Chief Executive Andrea Orcel signalled his merger ambitions.
But UniCredit’s move – a deal codenamed ‘Flash’ after Orcel’s dog – took Berlin by surprise and triggered opposition from labour unions and a defence strategy from Commerzbank.
The German government, which still owns 12% of Commerzbank after selling 4.5% of its shares to UniCredit, would play a key role in whether any deal can take place.
However, over the past week labour unions and Commerzbank management have called on the government to hold off on any further share sales.
The Finance Agency, which is part of the German finance ministry and manages government holdings, said a committee meeting of government officials on Friday had decided it “will not, until further notice, sell any additional shares”.
UniCredit declined to comment. A Commerzbank spokesperson said the bank had a strategy that works.
“Commerzbank is a stable and profitable institute. The bank’s strategy is geared towards independence. The Federal government will accompany this until further notice by maintaining its shareholding,” the agency said.
An official from Germany’s finance ministry, who did not wish to be identified, on Friday described the recent sale of part of Commerzbank’s stake as a test to see whether there were strategic buyers in the market. But others in the government have said they had wanted the shares that all went to UniCredit to go to a broad base of investors.
STRONGER COMPETITOR
UniCredit CEO Orcel has said he wants to start talks on a merger he says would “create a much stronger competitor” in Germany. His gambit comes after years of calls for Europe to improve its banks’ competitiveness in the face of larger U.S. and Asian rivals.
He faces big hurdles.
Cross-border European banking deals have been stymied by factors including years of paltry profitability that have left lenders too weak to try for tie-ups. And regulatory barriers to moving resources freely across borders have been reinforced by politicians’ preference for home-grown ‘champions’.
A turnaround of UniCredit has overcome one of the obstacles. The bank, unlike rivals, has the financial firepower for a bold combination after reaping bumper profits.
But national politics will be the hard part, and some investors have cautioned that cross-border deals remain difficult.
Anke Reingen, a banking analyst at RBC, said UniCredit was now unlikely to make a takeover offer soon.
“We do not think a deal is off the table, forever, but any move is likely to be later than we had initially expected,” she said.
Friday’s announcement means the German government’s plan is to now hold its Commerzbank shares beyond the 90-day lockup agreed at the time of the share sale last week, according to a person familiar with the discussions.
By Timothy Gardner and Laila Kearney
WASHINGTON (Reuters) – The U.S. Nuclear Regulatory Commission (NRC) said on Friday it has not yet gotten an application from Constellation Energy on restarting the Three Mile Island nuclear reactor.
Constellation and Microsoft (NASDAQ:) have signed a data center deal to help resurrect a reactor by 2028 at Three Mile Island in Pennsylvania. It has been shut since 2019.
“At this point there’s nothing in front of us in terms of an application. It’s up to Constellation to lay out its rationale for justifying restart, so we’re prepared to engage with the company on next steps,” said NRC spokesperson Scott Burnell.
Constellation said it had plans to file a permit application but did not immediately specify a timeline for doing so. “We anticipate the NRC review to be complete in 2027,” a company spokesperson said.
Nuclear proponents complain that NRC takes too long to review licenses, and a law signed by President Joe Biden this year is meant to help address that. But as demand for power soars for the first time in decades, the NRC is mulling a host of applications from new high-tech nuclear reactors and an application from a decommissioned reactor, in Michigan called Palisades, which if approved could be the first U.S. reactor to come back from restart.
Burnell said the NRC will use existing review processes to consider any licenses for TMI. Some opponents of quickly reopening shuttered nuclear plants have filed a petition at NRC saying the agency should adopt a new rule-making for such cases, as no closed U.S. nuclear power plant has ever been resurrected.
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