America’s employment situation continued to deteriorate, as August’s nonfarm payroll report showed far fewer jobs were created during the month than expected, and a final revision to June’s figures actually showed the country lost jobs.
The Labor Department reported Friday that nonfarm payrolls inched ahead by just 22,000 in August—sharply below economists’ expectations for 75,000 jobs created, and well below July’s slightly upwardly revised number of 79,000 (from 73,000 jobs gained previously).
More staggering, however, was a second revision to June’s nonfarm numbers, from 14,000 jobs gained previously to a loss of 13,000 for the month—the first decline since December 2020. That retroactively snapped a streak of 53 consecutive months of payroll gains. (August would have been the 55th.)
“Today’s softer-than-expected jobs report underlines the growing downside risks to the labor market,” says Simon Dangoor, head of Fixed Income Macro Strategies at Goldman Sachs Asset Management. “Hiring is running close to stall speed, and the breadth of jobs gains remains poor.”
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Unemployment ticked higher, too, at 4.3%—its highest level since late 2021. The figure was in line with economists’ forecasts and landed slightly above the 4.0%-4.2% range that had held over the past year-plus.
Reuters notes that immigration raids and the end of temporary legal status for hundreds of thousands of immigrants led to a reduction of 800,000 in the labor force during the second quarter. “The shrinking labor pool is not only curbing job growth, but also preventing a big rise in the unemployment rate,” Reuters says.
Also aligning with forecasts was August’s hourly earnings figure, which grew by 0.3% month-over-month, to $36.53. Over the past year, average hourly earnings have grown by 3.7%, also right in line with analysts’ expectations.
Here’s a brief look at the August jobs report’s most pertinent details:
- August payrolls: +22,000 MoM (estimate: +75,000)
- August unemployment: 4.3% (estimate: 4.3%)
- August hourly earnings: +0.3% MoM (estimate: +0.3%)
- July payrolls (revised): +79,000 (+73,000 previously)
- June payrolls (revised): -13,000 (+14,000 previously)
Health care once again was a source of strength for the economy, creating 31,000 jobs, though that was lower than the 12-month average gain of 42,000. Social assistance gained 16,000 jobs as well.
Federal government employment was weak yet again, shedding 15,000 jobs in August and 97,000 since January. Manufacturing employment was down 12,000 last month and 78,000 year-to-date, while wholesale trade employment was off by 12,000 jobs in August.
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The NFP tally follows a disappointing ADP private payrolls report that showed job growth of just 54,000 in August, itself shy of the consensus expectation for 75,000 jobs and a slowdown from 106,000 in July. “The year started with strong job growth, but that momentum has been whipsawed by uncertainty,” Nela Richardson, ADP’s chief economist, wrote in a press release.
Expectations for a Fed Rate Cut Spike
Wall Street was already convinced that the Federal Reserve was days away from a cut to the target for its benchmark interest rate; Friday’s report merely intensified that certainty.
“Nothing in today’s report changes the outlook for a September rate cut, with concerns over the labor market trumping the desire to wait for more clarity on tariff-induced inflation,” says Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments.
The CME FedWatch Tool, which uses Fed funds futures prices to track the probability of a change to the federal funds rate, now shows a 98% chance that the central bank will reduce its benchmark rate by a quarter-point, to a range of 4.0%-4.25%, during the next Federal Open Market Committee (FOMC) meeting, set for Sept. 16-17. That’s up from the 96% probability projected by Fed funds futures a day ago.
“While slow supply growth is mitigating upward pressure on the unemployment rate, the Fed is acutely aware that a low demand low supply equilibrium is fragile and vulnerable to deterioration,” Goldman Sachs’ Dangoor says. “A rate cut at this month’s meeting was already to be expected, and today’s data suggests the risk that the Fed may embark on a faster pace of easing than the cautious approach outlined by Powell at Jackson Hole.”
What About BLS Data Accuracy?
It’s worth mentioning that this is the first nonfarm payrolls report following the sacking of Erika McEntarfer, Commissioner at the Bureau of Labor Statistics. The surprise firing stunned most of the economic community and, combined with the nomination of a partisan replacement (E.J. Antoni of the Heritage Foundation), has many worried about the politicization of American data.
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Friends of the Bureau of Labor Statistics, a group comprised of economics and statistics organizations, chaired by two former BLS commissioners and the executive director of the Council of Professional Associations on Federal Statistics, provided a variety of background information for the September jobs report. Among the key takeaways is that, at least for now, the public can still trust BLS data. “BLS products flow largely from the same people following the same proven processes as ever,” they say. “Prominent, independent experts agree. No whistleblowers have reported interference in production or reporting of products.”
“The only presidential appointee position is the commissioner, so there are no political staff at BLS now,” they continue, nodding to the fact that Antoni has not yet been confirmed by the Senate. “The biggest immediate risk is from severe understaffing. Compared to January, staffing is down by about a fifth from firings, attrition, and a hiring freeze. Below the commissioner, 12 of BLS’s 35 top leadership positions are vacant. Remaining staff do their best with available resources; however, this level is not sustainable.”
Further nodding to the data’s accuracy is that it’s dovetailing with other reports of economic weakness.
“Job growth is clearly signaling a slowdown in the economy. Even factoring in concerns about data accuracy, the latest BLS figures are now aligning with what other surveys and data providers have been indicating for months,” says Kevin O’Neil, Associate Portfolio Manager & Senior Research Analyst, Brandywine Global. “As a result, despite lingering uncertainty around inflation, the weakness in the labor market is too significant for the Fed to ignore.”
More Expert Reactions to August’s Jobs Report
Here’s what other strategists, financial managers, and experts had to say about last month’s employment situation:
Joe Gaffoglio, President and CEO at Mutual of America Capital Management
“The labor market continues to show fatigue as businesses hold back on hiring amid uncertainty around the direction of inflation, tariffs and the strength of the underlying economy. Recent labor data showed that more individuals are unemployed in the U.S. (7.24 million) than there are available jobs (7.18 million), which hasn’t happened since April 2021. Overall, the economy is showing indications of softening, even as equity markets near all-time highs.”
Steve Wyett, Chief Investment Strategist, BOK Financial
“Green light means go. Expectations for a 25-basis-point cut were already a near certainty, but the weaker headline job growth number and the rise in headline unemployment will now cement the move in September. Chances of additional cuts this year are moving higher as well. There could be some discussion about 50 basis points in September, but our sense is there is still enough angst on inflation to keep the move to 25. We cannot ignore the move above 8% on the under-employment U6 rate as well. The labor market is not collapsing, but the weaker trend, particularly in the private sector, is clear. The Fed will act.”
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Lara Castleton, US Head of Portfolio Construction and Strategy, Janus Henderson Investors
“The print clearly shows the labor market is cooling, but this isn’t a meltdown. Despite the weak headline, the labor market is still generating jobs, and 4.3% unemployment remains historically healthy. Equities are reacting positively, and bonds yields down as this softer print cements a Fed rate cut in September, with the door open for more easing through year-end.”
Of course, revisions were front and center—June was revised down to -13,000, while July got an upward bump of 79,000. We’d expect more revisions going forward and caution on any overreaction to today’s numbers. Equities should continue their momentum, including ex-U.S. diversification which may see dollar weakness fueled by rate cuts, but an eye on fundamentals should be top of mind.”
Scott Helfstein, Head of Investment Strategy, Global X
“The tepid jobs number will get the headlines, but wage growth continues to be a good news story. Though there may be fewer new jobs, wages growing faster than inflation means the consumer is likely to keep spending, and that remains an important driver in this part of the economic cycle. That may be the silver lining here.
“With the weak job growth, the Fed is cleared to cut rates in September. The question is whether we get 25 basis points or 50 basis points. We continue to believe the Fed will ease into the cutting cycle here with one rather than two, but there is some latitude here. Resumption of the rate cutting cycle should help asset heavy businesses critical to many White House initiatives such as infrastructure, manufacturing, and robotics companies.”
Jason Pride, Chief of Investment Strategy and Research, Glenmede
“Today’s report adds to a growing list of soft employment signals, which continues to show cracks but not yet larger fissures for the U.S. labor market. Payroll growth missed expectations, which were already lowered after a weak ADP report, and previous months continued to see downward revisions. The unemployment rate edged up, but remains within a range consistent with a healthy economy.
“The labor market continues to reflect the ‘curious balance’ that Powell described at Jackson Hole, as both the supply and demand for jobs have simultaneously flatlined over the past few months. Businesses still appear cautious on hiring, and immigration policy may be affecting the foreign born population’s ability and willingness to engage in the labor market. For now, the labor market appears to be walking that tightrope, but it’s a fragile balance as downside risks are rising.”
