Market Sentiment Tracker: One Sector Holding Up the Whole Jobs Report

United States

Dig into the actual industry breakdown behind that -23K headline and the story isn't a broad-based downturn, it's a very specific one. Healthcare, which has carried almost the entire US labor market on its back for the last couple of years, added just 22,000 jobs in July. That's still growth, but it's well under its own 12-month average of 36,000, according to the BLS Employment Situation report for July. Construction also added 22,000. Basically every other big category was flat or negative: local government education lost 50,000, retail lost about 19,000, leisure and hospitality lost roughly 40,000, and financial activities shed 14,000, per TD Economics' breakdown and CNBC's coverage of the report. So when the one sector that's been doing all the heavy lifting for the labor market starts growing at half its usual pace, the headline number was never going to hold up, because nothing else was there to catch it.

Wages tell a similar story. Average hourly earnings rose just two cents to $37.62, putting the year-on-year rate at 3.2%, the slowest since May 2021, per the same BLS release. And this wasn't a clean one-month miss either. May and June got revised down by a combined 103,000 jobs, which means the softness in July was building on a labor market that was already weaker than the earlier prints suggested.

What's genuinely odd is that this happened alongside ISM services prices paid jumping to 70.3 against a 65.0 forecast. So input costs are rising for services firms even as they've mostly stopped hiring outside of healthcare and construction. That combination doesn't leave much room for a clean story either way. It's not the setup you'd want if you were hoping for jobs data soft enough to justify cuts without inflation getting in the way.

Europe

Germany's factory orders came in at 3.1% against a 0.5% forecast, six times what anyone expected, and the exports print backed it up with a solid beat too, according to data from Destatis, Germany's federal statistics office. That's real, and it suggests German industry is picking up some orders from somewhere. But retail sales across the eurozone fell 0.3% on the month when a small gain was expected, and the year-on-year number, 0.7%, missed the 1.0% forecast. So German factories are getting busier while European households are spending less, and those two things are happening at the same time without an obvious connection between them yet.

Spain keeps outperforming everyone. Services PMI came in at 58.3 against 54.9 expected, one of the bigger beats in the whole dataset this week, per the HCOB/S&P Global PMI series. France is the mirror image: composite PMI at 49.4, still under both the forecast and the 50 line, and this is now the fourth or fifth week running where France has landed on the wrong side of that number. French statistics agency INSEE's trade and employment data also showed the unemployment rate ticking up to 8.3%, so it's not just the surveys. Worth flagging too: Spanish unemployment rose by 19,500 when economists expected a drop of 18,400, which is the single sharpest surprise in the whole set and sits a bit awkwardly next to how well Spain's PMIs are doing. Something to watch next month rather than draw a conclusion from yet.

China

China's trade surplus beat expectations on both the dollar and yuan measures, and exports grew 23.9% year-on-year against a 22.2% forecast, so on the surface this looks like a decent week, based on the General Administration of Customs' trade release. But look at imports: 27.5% growth against a 27.9% forecast, and that's a big step down from 36.0% the month before. When imports slow down that much while exports keep growing, it usually means less is happening inside the country, not more happening outside it. Factories buying less in materials and components, households buying less from abroad, that kind of thing..

Services PMI dropping to 50.4 from an expected 53.7 fits right into that. Services PMIs tend to move ahead of the hard data, so this one probably deserves more attention than the trade numbers get. FX reserves, tracked by the People's Bank of China, came in essentially flat against consensus, which doesn't add much either way. None of this shows up in the headline surplus, which still looks strong. But a surplus that's growing mostly because imports slowed down more than exports sped up says more about softening demand at home than it does about China selling more to the world.