(MENAFN- Mid-East Info) By Daniela Sabin Hathorn, senior market analyst at Capital

The July U.S. Non-Farm Payrolls report due on Friday is expected to show a further cooling in the labour market. Expectations are for an increase of around 110,000 jobs, down from 147,000 in June. This would reflect a broader trend of decelerating job growth, consistent with the Federal Reserve's goal of achieving a more balanced labour market. Some analysts expect even softer gains-closer to 95,000-citing a slowdown in government hiring. Meanwhile, ADP's private payrolls data beat expectations with a 104,000 increase and, even though the correlation between both is usually weak, it could suggest the official report could land close to consensus.

Meanwhile, the unemployment rate is forecast to tick slightly higher to 4.2%, up from 4.1% last month. Average hourly earnings are expected to rise modestly, with annual wage growth anticipated at around 3.9%. Wage data will be closely watched, as strong wage growth could signal persistent inflationary pressures, while softer wage gains would reinforce the narrative of a cooling economy.

Beyond the headline numbers, structural labour constraints remain in focus. Factors such as declining immigration and an aging workforce are contributing to a slower expansion of the labour force. These supply-side constraints could put upward pressure on wages and limit long-term job growth even if demand remains steady.

This labour data holds significant implications for the Federal Reserve's monetary policy. While most Fed officials currently expect to keep rates steady through the end of 2025, a notably weak jobs report could increase pressure on the Fed to begin cutting rates sooner. Conversely, a stronger-than-expected print could delay those expectations and support the U.S. dollar and bond yields.

Reassessing the Q2 GDP surprise:

It is also important to factor in the GDP data released on Wednesday. In the second quarter, the US economy grew at an annualized rate of 3.0%, rebounding sharply from a 0.5% contraction in Q1 and beating expectations. However, looking closer at the data we can see that this rebound was heavily driven by a decline in imports-which subtract from GDP-rather than strong domestic demand.

Ultimately, the headline 3% figure as partly a mechanical swing tied to tariff-related front loading in Q1. Stripping out trade and inventory effects, underlying domestic activity appears much weaker. The tariff-driven buying frenzies in the beginning of the year have made it difficult to assess the underlying health and direction of the world's largest economy. Businesses drawing from inventories rather than importing new goods gave GDP an artificial boost, obscuring weaker consumer and business spending fundamentals.

-p decoding="async" class="CToWUd" title="A graph of stock marketAI-generated content may be incorrect." src="#" alt="A graph of stock marketAI-generated content may be incorrect." width="624" data-bit="iit" />

Past performance is not a reliable indicator of future results.

MENAFN31072025005446012082ID1109868067