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'Mixed messages': What Wall Street is saying about the shock July jobs report

·6-min read

The U.S. economy added 528,000 jobs in July, pushing the unemployment rate down to 3.5%.

Ahead of this data, economists had expected the report to show just 250,000 jobs were added to the economy last month as anxiety grows about a larger slowdown in growth.

Notably, these gains completed the labor market’s recovery from the hit it took during the pandemic. President Joe Biden celebrated the report as "good news" in a statement following the data.

Still, stocks were lower on Friday as investors saw this report as a sign aggressive interest rate hikes from the Fed are likely to follow.

As former hedge fund trader Tom Hearden put it succinctly on Twitter, "good news is bad."

A deluge of reactions from economists and strategists on Wall Street hit in our inboxes following Friday's blowout number, and Yahoo Finance rounded up some of what we got below:

Stephen Juneau, Economist, Bank of America Securities

With "little evidence of cooling labor demand, we now look for the Fed to lift the target range for the federal funds rate to 3.50-3.75% by year-end, 25bps more than we had expected previously," Juneau wrote in a note to clients.

"We still think the Fed will prefer to move in smaller-sized increments going forward when lifting its policy rate, and project 50bp hikes at the September and November meetings, followed by a 25bp hike in December. Risks to our outlook for monetary policy continue to be skewed into the direction of a firmer policy path."

Charlie Ripley, Senior Investment Strategist, Allianz

Allianz's senior investment strategist Charlie Ripley echoed this statement, noting that it was “nearly impossible to find any sign of weakness in labor conditions.” Beyond jobs numbers and unemployment rates, the wage growth also surged 0.5%, which is 5.2% compared to 12 months ago, he noted.

“Overall, today’s report should put the notion of a near-term recession on the back-burner for now and force the aggressive hand of the Fed,” he added.

Diane Swonk, U.S. Chief Economist, KPMG

“The establishment data still increased much more rapidly than the household data but not enough to bring the demand for workers closer to supply. The unemployment rate dropped to the record low hit in February 2020. This ups the pressure on the Federal Reserve to raise rates aggressively again in September. Another 75 basis point hike is likely.”

Sarah House and Michael Pugliese, Economists, Wells Fargo

"Broadly speaking, the economic data are sending mixed messages at present, and the white-hot payroll numbers look increasingly out-of-line with other data points. At least a 50 bps rate hike at the September 20-21 FOMC meeting seems likely at this point in time."

WASHINGTON, DC - JUNE 23: Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System testifies before the House Committee on Financial Services June 23, 2022 in Washington, DC. Powell testified on monetary policy and the state of the U.S. economy.  (Photo by Win McNamee/Getty Images)
Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System testifies before the House Committee on Financial Services June 23, 2022 in Washington, DC. (Photo by Win McNamee/Getty Images)

Ian Shepherdson, Chief Economist, Pantheon Macroeconomics

"The problem here is the stalling in the participation rate, which looked to be rising over the fall and winter but has made no further progress in recent months. Participation among women continues to creep higher but the rate for men has fallen markedly, for reasons which are not clear. At the same time, labor demand has softened but it is still strong, allowing wage gains to develop renewed traction. This, in turn, means that we will have to lift our forecast for the wage-sensitive components of the core CPI and PCE."

Rick Rieder, Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Investment Team, BlackRock

Rieder said the economy is “landing on a runway it has never used before” following Friday’s report.

“We think recent Fed officials’ comments on the final trajectory of a Funds rate in the mid- to high- 3% range would be very consistent with an economy and hiring conditions that are slowing, and with inflation receding, thus engineering the much desired ‘soft landing.’ However, we don’t believe that we are there yet, and the Fed may have to raise rates further, albeit at a more gradual pace than in recent months. Further, we think that the U.S. economy is an incredibly flexible and adaptive economy that self-calibrates very effectively relative to supply/demand for goods and services. In fact, we have often said that ‘high prices are the cure for high prices,’ but this does not preclude the possibility of a policy mistake, on either the monetary, or fiscal, front from here.”

James Knightley, Chief International Economist, ING Think

“Given the softer trend in activity and the fact that the US is in technical recession – two consecutive quarters of negative growth – we doubt that this pace of employment growth can continue,” ING’s Knightly wrote. “Nonetheless, we have to acknowledge that the near-term economic story is looking pretty good with the substantial falls in gasoline prices likely leading to a 3Q rebound in activity.”

Kathy Bostjancic, Chief U.S. Economist and Lydia Boussour, Lead U.S. Economist, Oxford Economics

"Despite today's strong employment readings, we believe that labor demand should resume its moderating trend through H2 2022 as companies cope with higher costs, reduced consumer demand and lower profitability. This should help bring worker demand and supply closer into balance. Looking ahead, we expect employers to add an average of 160k jobs per month in Q4 and 65k jobs per month in 2023. We see the unemployment rate rising to 3.8% in Q4 2023."

Mike Loewengart, Managing Director of Investment Strategy, E*TRADE from Morgan Stanley

"The massive beat by payrolls makes it hard to argue we are in a recession. And if we are, it’s certainly on the more unusual side. It’s not just a strong total number that highlights the health of the job market—growth was across the board and not limited to one or two sectors. The market’s tepid reaction could be sign that any hopes of a more dovish Fed are likely out the window."

Neil Dutta, Head of U.S. Economics, Renaissance Macro Research

"The July employment report was an absolute knock-out, a major upside surprise relative to my expectations and indeed much of the labor market data released up to this point. Talk of recession and a monetary policy pivot is premature. That said, this jobs report is consistent with an inflationary boom. The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely."

Ethan Wolff-Mann is a Senior Writer and Chief of Staff at Yahoo Finance. When he is reporting, he focuses on investing, consumer issues, and personal finance. Follow him on Twitter @ewolffmann.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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