Here are three key takeaways from July’s disappointing jobs report

U.S. nonfarm payrolls unexpectedly fell in July, but so did the unemployment rate, leaving investors with mixed signals on what to make of the latest jobs report.

Here are three important points:

Misleading numbers: The 23,000-job decline wasn’t as bad as it looked, and the drop in the unemployment rate to 4.1% wasn’t as good as it looked. The main reason for the red headline number is the loss of 53,000 government jobs, which development economists say is largely seasonal and subject to revision. Private payrolls actually increased by 30,000. At the same time, the unemployment rate has declined due to a further decline in the number of employed workers or those actively looking for work. Disappearing workforce: On the workforce theme, the participation rate fell slightly to 61.4%, down 0.7 points this year alone due to an exodus of nearly 1.4 million people. Although the numbers include a lot of immigration noise, they nonetheless change the dynamics by which policymakers assess the labor market. The 4.1% unemployment rate suddenly looks less impressive as attendance is the lowest in 50 years, excluding the coronavirus era. Where is the Fed? The market reacted to this report by taking the September interest rate hike off the table. Less rapidly: Central bank policymakers may receive more signals from a decline in the unemployment rate, as they may view it as an indicator of a relatively stable labor market. A common theme in Wall Street’s post-report commentary on Friday was that Fed officials are likely to put the report aside and quickly shift their focus to next Wednesday’s Consumer Price Index inflation measure — while acknowledging that slow payroll growth at least diminishes the urgency for a September interest rate hike.

“This report is a hall of mirrors, fooling investors with mixed signals about whether the labor recovery is stalled.” — Kevin Gordon, director of macro research and strategy at the Schwab Center for Financial Research.

“We agree that the (July) jobs report was a little dovish online. However, we stand by our assertion that the Fed will raise interest rates by 75 (basis points) this year starting (September). The Fed will continue to prioritize inflation over labor. The (July) CPI report is a bigger deal than today’s jobs report.” — Aditya Bhave, Bank of America economist.

“Stock markets are likely to welcome the report’s dovish implications, but investors should be wary of the future growth potential of an economy with fewer people working.” — Peter Graf, Chief Investment Officer, Amova Asset Management Americas.