Economic Data Round-Up: Inflation progress and a balanced labor market

The US labor market is closer to balance than weak payroll growth suggests, while moderating inflation gives the Federal Reserve room to remain patient.

• Nonfarm payrolls fell by 23k in July, and June’s gain was revised down to 20k from 57k, with losses in local government, leisure and hospitality, and retail trade.
• Unemployment nevertheless edged down to 4.1%, while the labor force participation rate fell to 61.4%, its lowest level in more than five years, reducing the job growth needed to keep unemployment stable.
• JOLTS data indicate a “low hire, low fire” environment, with subdued openings and hiring but low and stable layoffs; participation among workers aged 55 and over is declining, while prime-age participation remains resilient.
• Headline inflation eased to 3.4% year over year in July from 3.5% in June, while core CPI reached 2.5% and its three-month annualized rate fell to 1.6% from 2.3%.
• Core services and shelter inflation are trending down, and producer-price pressures have also softened, although energy prices, tariffs, geopolitics and AI-related demand for hardware, electricity, water and real estate remain risks.
• MUFG expects the Fed to keep policy rates unchanged through the end of 2026, with gradual cuts becoming more likely than hikes if inflation continues to moderate and growth slows.

Takeaway: The combination of weaker labor demand, constrained labor supply and easing inflation supports a patient Fed rather than immediate tightening or easing, but investors should monitor energy, tariff and AI-investment pressures for signs of renewed inflation.