US Jobs Report Falls Short of Expectations for Second Consecutive Month
The labor market cooled again in August, increasing concerns of an economic slowdown that could push the Fed towards a larger rate cut in September.
The highly-anticipated US jobs report, released today, showed the labor market continued cooling in August, as employers added just 142,000 jobs—falling short of the projected 160,000 and marking the second consecutive month of weaker-than-expected growth. The latest report from the Bureau of Labor Statistics (BLS) reflects a broader economic slowdown, driven by higher interest rates and increasing market volatility.
While the job creation figure for August was higher than July’s 89,000 new positions, revisions to earlier months paint a gloomier picture. The BLS revised job gains for June and July downward by a total of 86,000 positions, bringing the cumulative downward revision for the year to 372,000. Full-time employment plummeted by over 400,000 jobs in August, while part-time work surged by 527,000.
Despite these figures, the unemployment rate fell slightly to 4.2%, down from 4.3% in July, providing a mixed signal for the Federal Reserve and market analysts. The labor force participation rate remained unchanged at 62.7%, signaling stability in the number of people actively seeking work.
A Shifting Economic Landscape
Wage growth outpaced expectations, with average hourly earnings increasing by 0.7% for the month, up from July’s 0.1% decline. On a year-over-year basis, wages rose by 3.8%, driven in part by higher demand for skilled workers in sectors like construction and healthcare.
Nela Richardson, chief economist at payroll processor ADP, commented:
“The labor market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth.”
Richardson emphasized that wage growth will be a key metric to watch in the coming months as the Fed evaluates its next steps.
Sectors such as construction and healthcare were bright spots in the August report, adding 34,000 and 31,000 jobs respectively. However, manufacturing lost 24,000 positions, continuing a year-long trend of stagnation in the sector. Government hiring also rose, contributing 24,000 jobs to the monthly total.
The surge in part-time employment and the decline in full-time positions reflect a shift in the type of jobs being created. “Replacing goods-producing jobs with government jobs means higher inflation down the road,” warned Peter Schiff, chief economist at Euro Pacific Management. This dynamic could potentially reignite inflationary pressures, complicating the Federal Reserve’s goal of achieving a soft economic landing.
Fed’s Next Move
With inflation easing to 2.9% in July, the Federal Reserve faces mounting pressure to lower interest rates to avert further economic slowdown. Futures markets are now overwhelmingly predicting a 25 basis-point rate cut when the Fed meets later this month, with a minority of investors anticipating a more aggressive 50 basis-point reduction.
“Rarely has there been such a make-or-break moment,” said Seema Shah, chief global strategist at Principal Asset Management. “Unfortunately, today’s jobs report doesn’t entirely resolve the recession debate,” Shah added that, with inflation relatively subdued, the Fed has room to be cautious and potentially front-load rate cuts to ward off deeper economic issues.
Fed Chair Jerome Powell recently highlighted labor market risks, warning that the employment sector is becoming a bigger concern than inflation.
At the annual Jackson Hole symposium, Powell stated:
“We do not seek or welcome further cooling in labor market conditions.”
Economic Outlook
The August jobs report is emblematic of a labor market in transition, caught between inflationary pressures and economic deceleration. While some sectors continue to thrive, others—like manufacturing—are contracting, leaving economists and policymakers uncertain about the path forward.
As the Federal Reserve prepares for its upcoming meeting, it must weigh the risk of inflation against the growing signs of economic weakness. “The labor market is clearly experiencing a marked slowdown,” noted Paul Ashworth, chief North America economist at Capital Economics. However, he suggested that the current data points to a “soft landing” rather than a sharp recession.
The stakes are high for the Fed and the broader U.S. economy, as businesses and workers grapple with the long-term effects of an evolving job market.
US Stock Market Activity
With the highly-anticipated August jobs report falling short of expectations for the second consecutive month, US financial markets tumbled today, with the S&P 500 Index ($SPX) closing today’s trading session down 1.73% at 5,408.42.
The Dow Jones Industrials Average ($DOWI) closed today at 40,345.41, down 1.01%. The Nasdaq Composite ($NASX) closed the day at 17,127.66, down 2.55%.
The SPDR SP 500 ETF Trust (NYSE Arca: SPY), which aims to provide investment results that correspond generally to the price and yield performance of the S&P 500 Index, closed today down 1.68% at $540.36.
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