US Job Growth Slows Sharply, Triggers Global Stock Market Plunge

Global stock markets plummeted on August 2 following disappointing US job growth figures, sparking fears of an economic downturn and triggering a massive sell-off in the tech-heavy Nasdaq index.

Disappointing Job Growth and Tech Sector Woes Spark Global Market Sell-Off, Nasdaq Drops 2.4%

A sudden downturn on August 2 threatened the world's largest economy, as sluggish US job growth prompted a global sell-off in stock markets.

After Intel and Amazon disclosed disappointing results, the Nasdaq index, which is highly concentrated in technology, declined by over 2.4%.

According to the BBC, the unemployment rate reached its highest level in nearly three years, while employers added 114,000 jobs in July, which was significantly lower than anticipated—source: Official data.

The figures sparked speculation regarding the timing and magnitude of the Federal Reserve's interest rate reduction, as they indicated that the prolonged employment expansion in the United States may be reaching its conclusion.

The stock markets were already concerned about the high costs of borrowing. They were perturbed by indications that a long-standing increase in share prices, partially driven by optimism regarding artificial intelligence (AI), may be reaching its peak.

The Nasdaq experienced a "correction" on August 2, which resulted in a decline of approximately 10% from its most recent high. This event occurred within a matter of weeks.

On August 2, the Dow Jones Industrial Average and the S&P 500 experienced a 1.5% decline and a 1.8% decline, respectively, following the collapse of markets in Asia and Europe.

The Nikkei 225 index in Japan experienced a nearly 6% decline.

The Federal Reserve maintained interest rates earlier this week but indicated it was likely to reduce rates at its subsequent meeting in September.

"Now the question isn't will they [Federal Reserve] cut in September, but by how much," said Jay Woods, chief global strategist at Freedom Capital Markets.

Rising Unemployment and Stagnant Wages Heighten Fears of Fed's Delayed Action, Amazon Shares Plunge 10%

According to Seema Shah, Principal Asset Management's chief global strategist, the most recent employment statistics have prompted concerns that the Federal Reserve has waited too long to act.

She said, "Job gains have dropped below the 150,000 threshold that would be considered consistent with a solid economy."

"A September rate cut is in the bag and the Fed will be hoping that they haven’t, once again, been too slow to act."

The Labor Department's report on August 2 indicated that the unemployment rate had increased to 4.3%, the highest level since 2021 and a notable increase from the 3.5% rate of a year prior.

The average hourly wage has increased by only 3.6% over the past year, and wage gains have also diminished.

Amazon's shares declined more than 10% on August 2, even though the e-commerce behemoth reported a 10% increase in sales during the most recent quarter.

The organization would be significantly affected by any economic downturn in the United States, and it would also encounter investor skepticism regarding its substantial AI expenditures.

The chipmaker's warning that drastic action, including cutting more than 15,000 positions, would be necessary to restore growth also caused more than 27% of Intel shares to plummet.

Additionally, benchmark crude oil prices experienced a nearly 3% decline, which may indicate economic growth expectations.

Republicans have posited that reducing rates would be advantageous to Democrats. Donald Trump, the Republican presidential candidate, stated that a pre-election rate reduction is "an action that they are aware they should not be taking."

However, Federal Reserve officials have consistently maintained that politics do not influence their rate-setting decisions.

President Joe Biden said in a statement released after the jobs figures that the economy was still progressing.

After declining at the beginning of the year, the United States economy experienced an annual expansion rate of 2.8% this spring.

Analysts also attributed the unemployment rate's increase last month to an increase in the number of individuals seeking employment rather than an abrupt surge in job losses.

Nancy Vanden Houten, the chief US economist at Oxford Economics, believes the report overstates emerging weakness.

"We aren't dismissing the entire upward creep in the unemployment rate, but the economy is not in recession," she said.