The U.S. economy added fewer jobs than expected in August, with nonfarm payrolls increasing by 142,000. This was a decrease from the 89,000 jobs added in July and fell below the consensus forecast of 161,000. The unemployment rate did decrease slightly to 4.2%, and the labor force expanded by 120,000 during the month. However, the labor force participation rate remained stagnant at 62.7%. An alternative measure including discouraged workers and part-time employees for economic reasons also increased to 7.9%, the highest reading since October 2021.
The job report had implications on the Federal Reserve’s decision-making regarding interest rates. The slower job growth indicated a weakening labor market, paving the way for potential interest rate cuts later in the month. Stock futures initially reacted negatively to the data, and Treasury yields also dipped following the release. The markets had previously anticipated a 100% probability of rate cuts at the Fed’s upcoming meeting on September 17-18, with speculation leaning towards a half percentage point cut post-jobs report.
While the August numbers were in line with expectations, previous months saw significant downward revisions. The Bureau of Labor Statistics revised July’s total by 25,000 and June’s by 61,000. In terms of sectors, construction led in job growth with 34,000 additional jobs, followed by healthcare (31,000) and social assistance (13,000). Manufacturing, however, lost 24,000 jobs in August.
Average hourly earnings increased by 0.4% in August, exceeding expectations, and were up by 3.8% from a year ago. Average hours worked per week also saw a slight increase to 34.3. Market expectations regarding the Fed’s upcoming rate decision shifted towards a larger cut after the release of the job report. The decision-making process for the Fed revolves around balancing the risks of reigniting inflation versus potential recession.
The recent economic data has shown ongoing growth but a slowdown in the labor market. Various indicators, including Thursday’s report by ADP and Challenger, Gray & Christmas, suggest weakening job growth and increased layoffs. Most Federal Reserve officials, including Chair Jerome Powell and New York Fed President John Williams, have hinted at potential rate cuts to address the changing economic landscape. The decision to adjust policy will be crucial in navigating the current economic conditions.