528,000 jobs were created in the United States last month – far above expectations, and sufficient to compel a larger rate increase at the next Federal Reserve meeting. According to data released by the Bureau of Labor Statistics this morning, the unemployment rate fell to 3.5 percent in July, and the participation rate moved down to 62.1 percent.

Overall payroll employment has now exceeded pre-pandemic levels – hardly indicative of an economy toppling into recession.

Average hourly earnings rose 0.5 percent month-over-month, accelerating from 0.3 percent in June.

Ahead of the release, investors were positioned for a 250,000-job gain, with the unemployment rate seen holding at 3.6 percent.

The dollar is spiking higher as traders raise bets on a 75 basis point move at the Federal Reserve’s September meeting. Stock futures are tumbling. 2- and 10-year Treasury yields are ratcheting upward, but a reversal could be in the offing – tighter policy today could imply a harder landing in the future.

The Canadian dollar is getting crushed after the country shed 30,600 jobs last month – a second consecutive loss – lowering the likelihood of another super-sized rate increase at the Bank of Canada’s September meeting. Traders are unsure whether these numbers reflect a jobs market operating well beyond full employment levels, or a much more worrisome “sudden stop” in the economy as higher rates clobber housing market activity and weaken consumer consumption. We think it’s a bit of both – the economy does appear to be losing momentum, but with the participation rate falling to 64.7 percent and hourly wage growth running at 5.2 percent year-over-year, it seems labour market tightness remains the critical factor in driving monthly job creation into negative territory.

Karl Schamotta, Chief Market Strategist