He highly anticipated august employment report The U.S. economy added fewer jobs than expected in August, while unemployment fell, a figure that had Wall Street on edge.
The market welcomed the latest economic data indicating that the US labor market is slowing, as investors consider whether a further cooling could lead to a more significant reduction in wages. interest rates by the Federal Reserve meeting in less than two weeks.
There is now a 52% chance the Fed will cut rates by 50 basis points in September, compared with a 29% chance last week.
The monthly report of the Bureau of Labor Statistics, The labor market added 142,000 nonfarm jobs in August, below the 165,000 expected by economists, and the unemployment rate fell to 4.2%, according to consensus estimates compiled by Bloomberg.
In July, the jobs report was much weaker than expected. The US economy added just 114,000 jobs, while economists had expected 175,000 job additions. Meanwhile, the unemployment rate unexpectedly rose to 4.3%. This combination led Wall Street to its worst drop of the year before recovering throughout the rest of August.
Meanwhile, the unemployment rate fell to 4.2% from 4.3% in July. August’s job additions were larger than July’s revised 89,000. In addition, revisions to the June and July jobs reports showed the economy added 86,000 fewer jobs than initially reported in those months.
Wage growth, an important measure to assess inflationary pressuress, rose to 3.8% year-on-year, up from 3.6% in July. On a monthly basis, wages rose 0.4%, up from 0.2% in the previous month. Friday’s report also showed the labor force participation rate held steady at 62.7% from the previous month.
At the heart of Friday’s report is the debate over how aggressively the Federal Reserve should cut interest rates at its meeting later this month. In a speech in late August, Fed Chairman Jerome Powell said the cooling in the labor market has been “unequivocal,” adding that the central bank does not “seek or welcome a further cooling in labor market conditions.”
More signs of cooling in the labor market were seen early in the week. ADP’s national employment report for August showed that private payrolls in the U.S. added 99,000 jobs during the month, well below economists’ estimates of 145,000 and less than the 122,000 jobs added in July. The August data marked the fifth consecutive month of slowing payroll additions. Meanwhile, Wednesday’s data showed July ended with the fewest U.S. job openings since January 2021.
The data led markets to anticipate a 43% probability that the Fed will cut rates by 50 basis points by the end of its September meeting, according to the CME FedWatch Tool.
Wall Street and the Federal Reserve
The key question for Friday’s report was whether the August data confirm the cooling seen in July or show that the previous report exaggerated the weakness in the developing labor market.
At the heart of Friday’s report is the debate over how sharply the Fed should cut interest rates at its meeting later this month. During a speech in late August, Federal Reserve Chairman Jerome Powell said the cooling in the labor market has been “unequivocal,” adding that the central bank does not “seek or welcome a further cooling in labor market conditions.”
Economists have reasoned that Powell’s rhetoric means a weak jobs report in August could prompt the Fed to cut rates by 50 basis points at its September meeting.
“The August jobs data will be the crucial factor that determines whether Fed officials are inclined to start the rate-cutting cycle with a 50 basis point or 25 basis point reduction in September,” Veronica Clark, an economist at Citi, wrote in a note to clients. “Even if the unemployment rate recedes slightly, one month of data after many months of increases might not convince Fed officials (or us) that there are no asymmetric risks to additional increases, and weaker employment could still lead Fed officials to cut rates by 50 basis points in this case.”
Source: Ambito
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