Weak US jobs data reinforced expectations of a Fed rate cut in September

Employment in the U.S. in August increased by only 22,000 jobs, according to a report released Friday, September 5, the Bureau of Labor Statistics. While the consensus Wall Street forecast was variously reported to be between 75,000 and 76,500. This report will be a crucial factor in determining the scope and depth of future rate cuts, Barron's predicted earlier. Traders now estimate the probability that the regulator will ease policy at its next meeting at 99%.

The U.S. non-farm economy added 22,000 new jobs in August, according to data from the U.S. Bureau of Labor Statistics. They turned out to be significantly weaker than the forecast ofeconomists surveyed by Reuters, who assumed that the number of new jobs reached 75,000. Employment figures for July are also contrasting - on the contrary, they were revised upward from 73,000 to 79,000.

The unemployment rate rose slightly from July's figure, from 4.2% to 4.3%, in line with analysts' expectations.

Although the pace of hiring was slow, average hourly pay rose 0.3%, which was in line with preliminary estimates, but the annualized growth rate was 3.7% with a forecast of 3.8%.

Futures on major U.S. stock indices strengthened growth amid unexpectedly weak results. Futures on S&P 500 are growing by 0.3%, contracts on Nasdaq Composite - by 0.7%.

U.S. Treasury bond yields have fallen sharply.

The published data shows a weakening labor market and supports the case for an interest rate cut by the Federal Reserve this month, Barron's notes.

"We continue to see increasing weakness in the labor market amid continued uncertainty around duties, changes in immigration policy and increased AI adoption. On the positive side, the weaker the employment data, the more reason for the stimulative interest rate cuts that are already looming on the horizon," Eric Tim, chief investment officer at Comerica Wealth Management, wrote in an email Thursday. He was quoted by Yahoo Finance as saying.

According to CME Group's FedWatch tool, traders now estimate the probability of the Fed cutting interest rates at its next meeting on September 16-17 at 99%, up from 97% before the publication.

The low unemployment rate is more a consequence of a "slowdown" in both labor supply and demand rather than a sign of a strong labor market, Barron's wrote, citing KPMG chief economist Diane Swank. She said the sluggish pace of hiring and layoffs corresponds to a much higher unemployment rate - a signal that, as Swank notes, has not gone unnoticed by Fed Chairman Jerome Powell. Speaking in Jackson Hole in August, he signaled that "perhaps" it was time to cut interest rates, pointing to growing risks to the labor market. In those words, many saw a sign that it was him, not inflation, that the regulator was now putting first.

There is little doubt that Friday's jobs report will be a key factor in the scope and depth of future rate cuts, Barron's noted earlier. Even without new data, the sluggish hiring of recent months is probably already enough to prompt the Fed to cut rates, the publication said.

Inflation remains above the Fed's 2% target, but July employment data showed job growth slowed to an average of just 35,000 per month over the past three months, compared to an average gain of 168,000 per month in 2024, Barron's points out. In addition, the Bureau of Labor Statistics revised its May and June jobs data, "reversing" about 258,000 previously reported jobs. Following the release of this report, US President Donald Trump fired the head of the agency, Erica McEnturfer. And Wall Street changed its view of the strength of the labor market, resulting in heightened expectations of a rate cut.

This week, it was reported that the number of open job openings in the US fell to a 10-month low in July, and the number of unemployed exceeded the number of available jobs for the first time since the COVID-19 pandemic. Economists blame President Donald Trump's massive import duties and tougher immigration policies that have reduced supply in the labor market, Reuters points out.

This article was AI-translated and verified by a human editor