Financing

Unemployment rises, stocks plunge and the economy becomes a question mark

An unexpectedly weak jobs report Friday sent stocks falling and made an interest rate cut likely in September, if not sooner.
economy
A weak jobs report has spurred renewed recession fears. | Photo: Shutterstock.

At least the monthly jobs report wasn’t boring.

The U.S. Bureau of Labor Statistics said employers added 114,000 jobs in July, the lowest number since December of 2020. Unemployment, meanwhile, rose to 4.3%.

Both numbers were weaker than expected. And it sent stocks plunging on Friday.

The S&P 500 closed down 2% on Friday. The Dow Jones Industrial Average at one point fell nearly 1,000 points and was likewise down nearly 2% before closing down 1.5%. 

The Nasdaq, meanwhile, was down more than 2% and has been in a freefall in recent weeks.

Restaurant stocks were mostly down, with a few exceptions: El Pollo Loco, McDonald's, Starbucks, Red Robin, Yum Brands and Burger King owner Restaurant Brands International all closed higher.

The typical restaurant stock began the day Friday down 13%.

Restaurants did show some surprising resilience on the job front, adding more than 19,000 jobs in July.

Still, the report increased the likelihood that the U.S. Federal Reserve would lower interest rates in September, if not before then. The Fed had kept its rate steady on Wednesday but indicated that a cut was increasingly likely.   

Friday’s jobs report also increased fears that the economy was headed for a recession. The U.S. economy had shown surprising resilience, buoyed by strong consumer spending. But a weakening jobs market could spur a downturn many had expected from the moment the Fed began raising rates in late 2021 over inflation fears.

The report triggered the "Sahm Rule," a recession indicator that says a recession is imminent if the unemployment rate rises a half a percentage point above its 12-month average. Even if it doesn't trigger an actual recession, there is growing concern that joblessness is on the rise. The number of unemployed people grew by 352,000 in July to 7.2 million.

"We think this highlights the risks of a more rapid increase in joblessness over the coming months," the financial services company BNP Paribas said in a note on Friday.

Restaurants themselves have been feeling the ill-effects of those fears, though not all of them. Visits to restaurants like McDonald’s and Wendy’s have fallen as customers have cut back, frustrated by higher prices. Even Starbucks, typically considered immune to such cutbacks, says the economic environment is leading its non-loyal customers to come in less often.

UPDATE: This has been updated with additional information and closing stock prices.

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