SCOTT SIMON, HOST:
The stock market stumbled yesterday on a weaker-than-expected jobs report, maybe even tripped. The Dow Jones Industrial Average fell more than 600 points, and the tech-heavy NASDAQ index ended up in what's called correction territory, meaning it's fallen 10% from its recent high. Investors wonder if the economy is headed for recession and if the Federal Reserve won't intervene in time. NPR's chief economics correspondent, Scott Horsley, joins us. Scott, thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good morning, Scott.
SIMON: What got to the market about the jobs report?
HORSLEY: You know, even before the jobs report yesterday, there were signs of some cracks in the labor market. On Thursday, we learned that new applications for unemployment benefits had jumped to the highest level in a year. That sparked its own mini sell-off in the market. And then the route really accelerated Friday after the Labor Department said employers added just 114,000 jobs last month - far fewer than forecasters had expected.
What's more, the unemployment rate jumped to 4.3% in July. That's almost a full point higher than it was a year ago. And the worry is when unemployment rises that much, it generally doesn't level off right away. It tends to keep climbing. There's kind of a negative feedback loop where people lose jobs, so they have less money to spend, and businesses don't sell as much, so they lay off even more people. That's what markets are spooked about, and there's a concern the Federal Reserve may have missed an opportunity to interrupt that downward spiral.
SIMON: Well, and as you note, of course, they met just recently, and more remarkable than what they did do for some people was what they didn't do.
HORSLEY: Yeah. What they didn't do was cut interest rates. Instead, they left their benchmark rate at the highest level in more than two decades, where it's been for the full year now. Those high interest rates have helped in bringing down inflation, but they've also been a drag on some important parts of the economy, especially manufacturing and the housing market. Now, Fed Chairman Jerome Powell signaled Wednesday that the Fed might be ready to cut interest rates at their next meeting in September. Bloomberg's Mike McKee asked Powell if he's worried about waiting too long.
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MIKE MCKEE: Are you certain that you won't fall behind the curve and lead to unnecessary unemployment if you wait until September?
JEROME POWELL: Certainty is not a word that we have in our business.
HORSLEY: Now, investors were already expecting the Fed to cut rates by a quarter percentage point in September. After this week jobs report on Friday, they're betting a more aggressive half-point rate cut could be in the works. Quincy Krosby, who's chief global strategist at LPL Financial, says even that might not be enough.
QUINCY KROSBY: The market is concerned that it may be too little, too late.
HORSLEY: If the job market weakens further, there's going to be a lot of second-guessing about the Fed's timing. Just as the central bank was slow to raise interest rates three years ago when prices started climbing, critics will say it was too slow to cut rates when it had a chance to prevent a broader economic downturn.
SIMON: And, Scott, does this explain the Nasdaq, because tech stocks took a particular beating this week, didn't they?
HORSLEY: Yeah. Intel, the big chipmaker, had a terrible week. It reported disappointing earnings and said it's laying off about 15% of its workforce. Its stock lost more than a quarter of its value. That also dragged down some other semiconductor companies. And there's also been some newfound skepticism about artificial intelligence. You know, in recent months, excitement over AI has been pushing stocks to record highs. Krosby says some investors are starting to wonder if all the money that's been pumped in those stocks will, in fact, pay off.
KROSBY: The question is now, are they just spending too much and not able to integrate the features quickly enough in order to monetize it.
HORSLEY: Even the mighty Amazon saw its stock dropped nearly 9% Friday. The e-commerce giant is spending tens of billions of dollars this year to build up its cloud computing and AI businesses. That is expected to cut into Amazon's profits, though, and on a day when many people were in a foul mood anyway, it didn't take much for them to dump the stock.
SIMON: NPR's Scott Horsley, thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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