August’s jobs report offered a bit of a mixed message, with the unemployment rate still retreating despite employers across the country adding fewer jobs than expected.
According to the U.S. Bureau of Labor Statistics within the Department of Labor, total nonfarm payroll employment grew by 142,000 jobs. That’s short of the increase of 160,000 jobs predicted by a Reuters poll of economists and just shy of the 145,000 forecast by Wells Fargo. It was also far below the average gain of 202,000 jobs seen over the prior 12 months, though it is, however, in line with average job growth in recent months.
In fact, due in part to heavy downward revisions to job growth in the past two months, it handily exceeds the three-month moving average of 116,000 jobs. July’s initially reported 114,000-job increase was amended down to 89,000, the fewest jobs added since December 2020. June hiring, meanwhile, was downwardly revised to 118,000, trimming 61,000 jobs from the originally reported figure.
Job gains were broad, with several sectors logging gains, led by leisure and hospitality (up 46,000 jobs in August); health care and social assistance (44,100); and construction (34,000). Manufacturing (which shed 24,000 jobs), retail (-11,100) and information (-7,000), on the other hand, saw payrolls decrease.
The jobless rate backtracked slightly despite the soft employment pickup, ebbing from 4.3% in July to 4.2% in August. The improvement offered a silver lining to the report, offering some evidence that the slowing of job growth, while notable, isn’t out of control. Still, the unemployment rate is up year over year (it was at 3.8% in July 2023) and the Sahm Rule trigger (at 0.57) remains above the historical level linked to early warning signs of a recession.
Add to that the greater-than-expected upswing of average hourly earnings (which grew 0.4% monthly and 3.8% annually), and you have a somewhat hazy outlook when it comes to reading a labor environment that appears to be cooling at the clip the Federal Reserve wants, albeit with some potential warning signs to watch. That leaves antsy markets speculating on the size of September’s widely presumed rate cut with no clear indicators on the table. Wells Fargo, which has been predicting a 50-basis-point rate cut, is thus far leaving that projection unchanged. Others, though, are projecting a more conservative pullback for now.
“Overall, today’s report signals that the U.S. labor market continues to cool gradually, which supports the Federal Reserve’s impending pivot from an inflation-fighting campaign to buoying a cooling labor market,” said Sam Williamson, senior economist at First American Financial Corp.
“The August labor data shows improvement over July, but ongoing softening, which likely sets up the Fed to kick off its rate-cutting cycle with a 25-basis point cut later this month. Had the labor market deteriorated more significantly, it may have triggered the Fed to consider a 50-basis point cut in September.”
Scotsman Guide’s readers are expecting a smaller rate cut as well: some 63% of respondents in an email poll in The Originator newsletter said the believe a 25-bps cut is in the cards, with just 30% anticipating a 50-bps reduction.
