The US job market is unlikely to see significant improvement in July, with non-farm payrolls and the unemployment rate likely to remain relatively stable. The market is no longer solely focused on the published employment figures, but is delving into underlying changes in the labor market through various sub-indicators. June's employment situation already showed signs of weakness, with only 57,000 new non-farm jobs added. The market expects 83,000 new jobs in July, with the unemployment rate remaining unchanged at 4.2% . Labor force participation rate, wage growth, and the employment situation across various industries will be key references for Federal Reserve officials in formulating monetary policy. Currently, the Fed is in a state of internal conflict, acknowledging the overall stability of the job market while remaining wary of a rebound in inflation and not ruling out further interest rate hikes. Subtle changes in the job market could reshape the course of monetary policy for the entire year.

Inflation remains the primary policy consideration.

Heather Long, chief economist at the Navy Federal Credit Union, stated, "The Fed's focus is entirely on inflation, which is not inherently problematic. However, it's equally important to consider whether the current economy can provide sufficient opportunities for young Americans to build career paths." The June jobs report revealed alarming signs: the size of the labor market participation rate shrank significantly, falling to 61.5%, a new low since the recovery phase of the pandemic in March 2021. Excluding the exceptional period of the pandemic, this figure is the lowest since June 1976. The participation rate of the core working-age population (25-54 years old) also declined sharply, falling to its lowest point since December 2023, with the monthly decline second only to the peak of the pandemic in April 2020. The market urgently needs to determine whether this decline in participation is merely a statistical anomaly caused by seasonal fluctuations, or the beginning of a deterioration in the fundamentals of the job market amid cautious hiring by businesses.

The pattern of "low hiring and low layoffs" has sown the seeds of future problems.

Federal Reserve Governor Lisa Cook stated, "While hiring is low, layoffs are also limited, so the unemployment rate remains stable. This equilibrium of low hiring and low layoffs has a particularly strong impact on certain groups, including first-time job seekers, and it can significantly dampen workers' market confidence." She added that while she is confident in the overall labor market, she would support further interest rate hikes if inflation does not improve, and a growing number of central bank officials are considering tightening monetary policy. The market expects average hourly earnings to rise 0.3% month-over-month and 3.5% year-over-year in July, a wage growth rate that theoretically aligns with the Fed's 2% inflation target. The Fed prioritizes the unemployment rate over monthly fluctuations in non-farm payrolls. However, the current low unemployment rate is largely due to workers leaving the job market; the total number of employed people in the US is projected to decrease by 833,000 by 2026. Citigroup economist Veronica Clark stated, "While current labor market data can be described as 'stable,' we believe the situation will change in a few months, with the unemployment rate exceeding 4.5%. At that point, market focus will shift back to the possibility of interest rate cuts; in our baseline scenario, rate cuts will resume in the fourth quarter." Vanguard Group, based on pension data, estimates that only 18,000 new non-farm jobs were added in July, warning that weak employment could continue into the fall. Analysts predict that some of the workforce will return to the job market, with job seekers growing faster than job supply, further pushing up the unemployment rate. In summary , beneath the seemingly stable employment data, the declining labor force participation rate is already a warning sign. The future evolution of the job market will directly determine whether the Federal Reserve chooses to raise interest rates to combat inflation or shift to rate cuts to support the economy, and the capital markets will experience significant volatility as a result.