Sophia’s Thoughts on Jobs and Jitters
Last week’s July jobs report came in well below expectations, increasing rate cut probabilities, rattling markets, and prompting political fallout at the highest levels.
These are Sophia's Thoughts:
The July report revealed the weakest job growth since the pandemic, with massive downward revisions and a shrinking labor force fueling broader slowdown fears.
Markets swung sharply as recession odds dropped, rate cut expectations surged, and Trump escalated tensions by firing the head of the Bureau of Labor Statistics.
While Bitcoin fell alongside equities, the path toward looser financial conditions and an emerging AI-led economy could set the stage for crypto to rebound into Q4.
🚀 Last week’s market performance
The crypto market fell 2.7% this week, led by a 2.5% decline in Bitcoin (BTC) amid broad-based risk-off sentiment. Litecoin (LTC) was the standout performer, gaining 11.3% on renewed optimism around potential ETF inclusion. On the other end, Helium (HNT) dropped 17.0%, making it the week’s worst performer as momentum faded following recent gains.
🧐 What is your crypto mood today?
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🌧️ A Big Miss for U.S. Jobs
The July jobs report was worse than expected, and worse than it looked at first glance.
Nonfarm payrolls rose by just 73,000, far short of the 110,000–115,000 forecasted. But the real blow came in the revisions: May and June were slashed by a combined 258,000 jobs, pulling the three-month average down to just 35,000, the weakest stretch since the 2020 pandemic. As Joe Brusuelas, Chief Economist at RSM, put it, this was “absolutely the worst major economic report since the end of the pandemic era.”
The weakness was widespread. Health care and social assistance added 73,300 jobs, accounting for the entire month’s gains, while sectors like manufacturing and construction shrank. KPMG’s Diane Swonk summed it up simply: “There was a three-legged stool holding up the labor market… and now we’re down to one. A one-legged stool is dangerous.”
Labor force participation fell to 62.2%, its lowest level since 2022, marking the third straight monthly decline. Economists attributed the drop to demographic shifts, immigration enforcement, and worker discouragement. EY-Parthenon’s Gregory Daco noted that “tariffs and uncertainty are paralyzing employers,” making it harder for firms to plan and hire.
These cracks come as technology further distorts traditional patterns. AI is enabling firms, particularly in tech, to grow revenues while shrinking headcount—an inversion of historical norms.
Just two days before the report, Fed Chair Jerome Powell had called the labor market “solid,” citing steady job gains and low unemployment. But the new data painted a different picture. “We are in a broad economic slowdown,” said Luke Tilley, Chief Economist at Wilmington Trust. “Whether it translates to a recession or not is the question I’m asking now.”
⚠️ Markets React, Politics Explode
Markets didn’t take the July jobs data lightly. The S&P 500 dropped 1.6% on the news—its worst day since May—before staging a modest recovery led by tech stocks. Bitcoin fell 3% to USD 113,231 while gold rose 1.5% to USD 3,342/oz, as investors looked for safety. The dollar also tumbled 1.37% on the news.
Bond markets moved even faster. The 2-year Treasury yield plunged more than 25 basis points, the biggest single-day drop in a year, as traders rapidly repriced the path of interest rates. According to the CME FedWatch Tool, the odds of a September rate cut jumped from 40% to 89%, signaling a dramatic shift in expectations. “Friday’s payrolls report brings payroll growth closer in line with big data indicators,” Goldman Sachs wrote, “confirming our view that the U.S. economy is growing at a below-potential pace.”
Despite the economic shock, most analysts stopped short of calling for a recession imminent. Polymarket odds for a 2025 U.S. recession dipped to 16%, down from over 60% earlier this year. PNC’s Gus Faucher noted that “the most likely outcome is still weaker economic growth in the second half of 2025… but no recession.” That view was echoed by Key Private Bank’s George Mateyo, who said, “We still don’t think the base case is that a recession is going to manifest. But it’s going to be a pretty big slowdown.”
Then came the political response. Within hours of the report, President Trump fired Bureau of Labor Statistics Commissioner Erika McEntarfer, calling the jobs numbers “phony” and “rigged” in a Truth Social post. The President claimed that the statistics had been manipulated to make him look bad, saying, “So you know what I did? I fired her. And you know what? I did the right thing.”
The move drew swift condemnation from economists and lawmakers. “This is disastrous,” said Raymond Robertson, an economist at Texas A&M. “To have a president who refuses to accept the numbers and then fire people because he doesn’t like the numbers… this is part of trying to bend the numbers to political will.”
💡 What This Means for Crypto
For crypto, the July jobs report was another reminder that macro still runs the show.
Bitcoin’s 4% drop last week mirrored the equity market selloff, suggesting that it often still behaves like a risk-on asset, rather than a hedge. While rate cut expectations surged, the move wasn’t enough to push crypto higher. As CoinDesk noted, weaker macro data doesn’t automatically mean upside: bad news isn’t always bullish.
That said, the medium-term outlook could be constructive. With the odds of a Fed rate cut in September now near 88%, financial conditions are likely to ease. Lower interest rates have historically supported demand for high-beta assets like Bitcoin. Looser liquidity, a falling dollar, and slowing growth without recession could provide the mix crypto thrives on.
There’s also a broader structural shift underway. Tech companies, especially those leaning into AI, are increasing revenue without expanding headcount. That’s rare, and it signals an emerging economic model. AI and crypto are the new economy assets, and both may attract capital as traditional industries slow.
Fiscal stimulus is also playing a role. With deficits running near 6–7% of GDP, government spending continues to inject liquidity into the system, offsetting some of the private-sector weakness. White House economist Kevin Hassett acknowledged that the July numbers were a concern but still pointed to reasons “to be super optimistic about the second half of the year.”
Looking ahead, Jackson Hole in late August becomes the next major signal point. If Powell hints at a shift, or if new data supports further easing, crypto markets could react ahead of the curve. For now, the macro winds are shifting—and crypto, as always, is listening closely.
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