On Friday of last week, the EUR/USD currency pair skyrocketed. It hit a new weekly high of 1.1759, its highest point since late July. At the same time, the euro’s exchange value skyrocketed. This spike came against the backdrop of weak employment numbers from the US, who added just 22,000 jobs in August—not even half of the 75,000 that had been anticipated. The unemployment rate jumped to 4.3%. These job cuts combined with a recent surge in initial claims for unemployment insurance indicate a potentially dramatic turn in the labor market.
To say that the economic landscape is changing would be an understatement. Market analysts are watching these developments very closely, in particular with the next European Central Bank (ECB) interest rates decision coming up. The dismal employment report raises questions about the strength of the U.S. economy and how it may influence monetary policy decisions across the Atlantic.
US Employment Figures Fall Short
The August Nonfarm Payrolls report painted a different rosy picture with the economy adding just 22,000 new jobs. This was a big difference – well below the projected 75,000. This latest surprise dip is underscoring myriads of long-time troubles in the U.S. labor market and calling into question sustaining a growth-oriented expansion. The national unemployment rate ticked up a bit from 4.2% in July to 4.3%. This is consistent with our expectations and indicates an early softening in the labor market’s job security.
The Labor Force Participation Rate experienced a slight uptick, going up to 62.3% from 62.2%. This is a positive sign that more Americans are re-entering the workforce. Scratch the surface at those overall job creation figures and a grim counterpoint emerges.
U.S.-based employers announced an eye-popping 85,979 job cuts in August. That’s a 39% increase over the 62,075 layoffs announced in July. This is the worst monthly job cut reading since 2020. Perhaps most importantly, the report sheds light on the precariousness of work all across the country.
Job Openings and Wage Trends
The Job Openings and Labor Turnover Survey (JOLTS) monthly report was a particularly bright spot this month. On the last business day of July, there were approximately 7.18 million job openings out there. While this figure provides some insight into available employment opportunities, the low job creation numbers raise questions about hiring dynamics and employer confidence.
On the wage growth front, annual inflation as measured by Average Hourly Earnings ticked down to 3.7% from 3.9%. This large drop indicates that employers are having a harder time raising wages in an increasingly soft labor market. Without this support, consumer spending — the main driver of economic growth — would likely suffer.
Still, it was the second increase in 3 weeks, with Unadjusted Initial Jobless Claims for the week ending August 31 up to 237,000. This jump from last week’s number of 229,000 was larger than the predicted 230,000. This sharp upward trend in jobless claims is indeed alarming, as it may signify rapidly rising unemployment levels and overall economic instability.
Eurozone Economic Indicators
While the Eurozone hasn’t gone through the same shock as the U.S. Retail sales in the region were down 0.5% in July. This decrease came after an increase of 0.6% as reported in June and was much lower than expected, which was only a small decrease of -0.2%. This unexpected drop in retail sales points to a deterioration of consumer confidence and could weigh on longer-term growth prospects across the Eurozone.
The monthly HICP has risen to 0.2%. This is a huge relief considering the 0% measured in July. Retail sales growth on an annual basis increased to a still-modest 2.2%. This was less than the expected 2.4% and well behind last year’s strong 3.5%.
The UK’s long-term government bond yields have recently skyrocketed to their highest level since 1998, reaching 5.680%. That’s a big deal, even outside of the strong employment numbers. This enormous increase could be the result of investor expectations about upcoming shifts in interest rates and broader economic factors in Europe.