The US labor market showed unexpected weakness in July, with non-farm payrolls declining by approximately 23,000. This figure significantly reduced the probability of a Federal Reserve interest rate hike in September, leading traders to price in a 44% chance of an increase at the upcoming Federal Open Market Committee (FOMC) meeting.
In the hour following the report, Bitcoin experienced a modest increase of 0.7%, reaching a local high of $65,300. This contrasts with previous market reactions to stronger-than-expected labor data, which had triggered hawkish repricing and substantial cryptocurrency market liquidations.
Jobs Report Surprise and Fed Rate Outlook
Payrolls were forecast to rise by 83,000, according to the Dow Jones consensus. The Bureau of Labor Statistics (BLS) reported the decline on Friday morning, as per CNBC. CME Group’s FedWatch tool indicated a 44% probability for a September rate hike and a 58.3% chance for an October increase following the data release. Treasury yields fell, and Dow futures climbed close to 200 points.
Bitcoin’s Initial Market Response
Bitcoin had been trading around $64,500 in the 30 minutes prior to the jobs report, according to data from CoinGecko. The cryptocurrency’s reaction was notably less volatile than in previous instances where labor data surprised the market. For example, stronger-than-expected labor data two months prior coincided with a hawkish repricing, driving Bitcoin down by 20% and resulting in $1.7 billion in liquidations.
Deeper Dive into Labor Market Metrics
Revisions to previous months’ data also indicated a weaker labor market than previously reported. The BLS revised down May payrolls by 66,000 to 63,000 and June by 37,000 to 20,000. These revisions mean that job creation over May and June was 103,000 weaker than initially stated. The average monthly job creation over the past year now stands at 34,000.
Sector-specific data revealed significant job losses in local government education, which shed 50,000 positions, and leisure and hospitality, which lost 40,000. Retail trade saw a decrease of 19,000 positions, and financial activities lost 14,000. Conversely, health care added 22,000 positions, falling short of its monthly average of 36,000, while construction added 22,000. Private sector payrolls increased by 30,000, while government employment saw a decrease of 53,000.
In terms of wages, average hourly earnings rose by 2 cents to $37.62. However, annual wage growth slowed to 3.2%, below the 3.5% forecast and marking the weakest growth since May 2021. The unemployment rate edged down to 4.1%, but this was accompanied by a shrinkage in the labor force by 264,000, leading to a decrease in the labor force participation rate to 61.4%.
Historical Context and Expert Commentary
The Federal Open Market Committee (FOMC) had previously held its benchmark interest rate steady at 3.50% to 3.75% on July 29. This decision was made by a 9-to-3 vote, with three regional presidents favoring a quarter-point increase. Inflation has remained above the Federal Reserve’s 2% target.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, commented on the report, stating, “This morning’s report is a game changer in the sense that all of the recent focus has been on inflation and this report highlights the risks that are embedded in the labor market as well.”
Earlier in the week, digital asset funds experienced outflows totaling $454 million during a period of fading rate expectations, indicating investor caution in the broader digital asset market.
Why This Matters
The materials describe a narrow update: US non-farm payrolls unexpectedly declined by approximately 23,000 in July, contrary to forecasts of an 83,000 increase. The probability of an October Fed rate hike was 58.3%.
Broader Context
Source materials place the factual news in this context: Bitcoin Barely Budges as Weak US Jobs Data Cuts Fed Hike Odds to 44%.
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