NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Softer Payrolls Ease the Pressure While Inflation Looms Large

August 10, 2026
Shannon L. Saccocia, CFA, Chief Investment Officer—Wealth

We remain overweight global equities and will look to use volatility to add to high-conviction ideas and identify duration/credit disconnect opportunities within fixed income.

July non-farm payrolls came in sharply weaker than expected, declining by -23k versus expectations for a +80k gain. In addition, there were meaningful downward revisions to the strong May and June reports, with the former adjusted from +129k to +66k and the latter revised changed from +37k to +20k – casting doubt on the sustainability of the recent labor market recovery.

Driving the July print were declines in leisure and hospitality (-40k) and retail trade (-19k). While this weakness could be attributed in part to the end of the World Cup and typical seasonality, meaningful reductions in local government education (-50k) and financial activities (-14k) compounded those pressures. The latter has continued to shed jobs over the course of the last year, with -121k fewer jobs than the peak in May 2025. Relative bright spots were construction (+22k), durable goods manufacturing (+18k), and transportation and warehousing (+10k); we believe this is consistent with both the inflection higher in industrial activity as well as the lack of AI competition for these roles. Health care (+22k) too was up, although at a slower pace than the prior two months.

The household survey reflected continued declines in labor market participation, as the participation rate fell from 61.5% to 61.4%, the number of employed persons dropped by -87k, and the level of unemployed persons decreased by -178k. Of note, the labor participation rate now sits at its lowest point since February 2021; the slower pace of immigration is a likely contributor to this decline and bears worth watching as it relates to the longer-term impact on consumer spending and GDP. Given the weaker report, average hourly earnings were up by only +0.1% month-over-month, and +3.2% year-over-year, as the average work week was flat at 34.3 hours.

Equities are poised to close the week on a positive note; today’s report is contributing to the recovery following a choppy July. The weak jobs report should take some pressure off the Fed following their hotly contested decision to hold rates steady in last week’s meeting, and bond markets reflected the softer report, as the probability of a Fed rate hike in September fell to 44% from 58%. However, the relief could prove short-lived, as the emphasis of the FOMC right now is clearly on inflation. With two CPI reports still to come ahead of the September meeting, expectations could shift meaningfully between now and then. As Fed Chair Kevin Warsh pushes back on providing forward guidance, the annual Jackson Hole Economic Policy Symposium, scheduled for August 27-28, could play an even more important role in terms of evaluating the stance of different members of the Committee following July’s data in totality.

While we concede that inflation remains above the Fed’s reiterated target of 2%, we maintain our view that the disinflationary trend in services and shelter can persist through the back half of 2026. As such, we see continued opportunity to pivot portfolios from cash into modestly longer duration positions at attractive yields. Equities could remain volatile as attention shifts to macroeconomic, policy, and political concerns; with earnings season ending, reaction to unexpected events in those areas could outweigh the fundamentals, at least in the short-term. We remain overweight in global equities and will use volatility to allocate fully to our highest conviction ideas; we are also focused on identifying disconnects between our views and the fixed income markets as potential opportunities in both duration and credit positions.

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