Non-farm employment is in negative growth, yet the unemployment rate is down—how does that make sense? 1. Unemployment rate = Unemployed population / Labor force This can be understood in two ways: - A "good" drop: More people found jobs (numerator decreases, denominator stays the same). - A "bad" drop: People stopped looking for jobs, and the labor force shrank (numerator and denominator both decrease, or the denominator shrinks faster). After digging into the detailed data, this time it’s a "bad" drop. 2. From the BLS database: In July, the labor force decreased by 264,000. Among them, 87,000 were unemployed, while the remaining 178,000 are no longer counted as unemployed... The reason the unemployment rate dropped is that the denominator shrank faster than the numerator. Employment and unemployment both fell, which can only mean one thing: A whole group of people disappeared... exited the statistics. Why? For example, due to immigration policies, people were forced out... Students working summer jobs went back to school... And some people couldn’t find jobs and gave up looking. (Wanting to work but unable to find a job = unemployed. Not wanting to work = exited the labor force.) 3. What about other data? Full-time jobs are decreasing, part-time jobs are replacing full-time ones, the number of people holding multiple jobs is rising, temporary layoffs are surging, and average hourly wages have barely increased... In short, this is not what you’d expect when the unemployment rate drops. ------------ 4. Conclusion — Overall, this leans toward rate cuts. 1) This drop in the unemployment rate is a "bad" drop... The job market isn’t doing well. Not favorable for rate hikes. 2) The fact that hourly wages barely increased is the most dovish signal. The wage-inflation transmission chain is loosening, which supports rate cuts. 3) The rise in temporary layoffs, along with the shift from full-time to part-time jobs (part-time jobs count as two positions in non-farm payrolls, so the actual non-farm data is even worse), also doesn’t support rate hikes... So... The question is, will the market only focus on this 4.1%? Or will it take a closer look at what’s really happening behind the scenes?