Baker Market Update 2026-08-07

Bond yields fell this week as markets continued to assess whether or not the Fed will raise rates this year. The case for a rate hike certainly took a hit this week as a string of employment data painted a picture of a weakening labor market that was sending recessionary signals. On Tuesday, the JOLTS report showed job openings fell by 178k, about 100k less than expected. Then on Wednesday, private payroll firm ADP reported private non-government payroll growth in July was just 44k, less than the expected 65k increase and down from 95k in June. But the biggest labor market disappointment came Friday morning when the BLS reported the economy unexpectedly lost 23k jobs, a far cry from the 80k job gain that economists had forecasted. In fact, of the 75 economists surveyed by Bloomberg, the lowest estimated job gain was 40k so the actual job losses were 63k lower than the most pessimistic economist. And it wasn’t just a weak July number. May and June job gains were revised lower by a combined 103k, bringing the 3-month average payroll gain to just 20k, down significantly from 142k in May. Despite the loss of jobs, the unemployment rate actually fell to 4.1% in July. How is that possible? Because 381k people left the labor force and the labor force participation rate unexpectedly fell to 61.4%. According to David Rosenberg of Rosenberg Research, “Absent the contraction of the labor force these past two months, the unemployment rate would actually be at 4.7%.” And finally, wages rose just 0.1% for the month and are up 3.2% from a year ago, suggesting little inflationary pressure on employers.

Altogether, this was a very weak employment report that substantially hurts the case for a rate hike and markets are now pricing in less than a 50% probability Fed will hike in September. The focus for next week will be Wednesday’s July CPI report which is expected to show a moderation in both headline and core consumer inflation.

Nonfarm Payrolls