The latest report on the US economy reveals that the job market expanded at a slower rate than anticipated in August, despite a marginal decline in the unemployment rate. According to data released by the Bureau of Labor Statistics, total nonfarm payrolls increased by just 142,000 positions last month.
This figure fell short of analysts' forecasts, which had predicted an increase of 165,000 jobs based on a survey compiled by Bloomberg. In a noteworthy revision, employment gains from July were adjusted downwards from their initial estimate by 25,000, bringing the total to 89,000, and June's figures also saw a drop by 61,000 jobs. The report has been interpreted as further confirmation of a cooling labor market.
Thomas Feltmate, a Senior Economist at TD Economics, highlighted this trend in a recent note. He pointed out that the job growth fell short of expectations and that the downward revisions siggest a weaker trajectory for job creation. A comprehensive review of the private payroll figures shows an increase of only 118,000 in August following a modest rise of 74,000 in July, again missing the consensus projection of 140,000 from Bloomberg. Interestingly, while the unemployment rate dipped from 4.3% in July to 4.2% in August—aligning with analysts’ expectations—the labor force participation rate remained unchanged at 62.7%.
Feltmate commented on the prevailing sentiment in the labor market, stating, "Clearly the labor market has cooled over the past year, but we feel there isn't enough evidence to suggest that the recent softening is the start of a more serious deterioration in underlying fundamentals." He elaborated that unless there's a substantial change in the economic outlook, TD Economics anticipates three quarter-point rate cuts by the Federal Reserve by the end of the year. Market indicators suggest a roughly 63% probability that the Federal Reserve will implement a 25 basis points reduction in its benchmark lending rate later this month.
There's also a remaining probability that could favor a more aggressive approach with a 50-basis-point cut, as indicated by the CME FedWatch tool. In sector-specific findings, the service industry accounted for a notable addition of 108,000 jobs in August, compared to a modest rise of 54,000 jobs in July.
Additionally, sectors related to financial activities and professional and business services showed a rebound to positive growth, while the leisure and hospitality sector significantly improved its figures, adding 46,000 jobs in August as opposed to just 24,000 in July. However, the goods-producing sector experienced a slowdown, managing to add only 10,000 jobs after a more robust addition of 20,000 in the previous month. Another encouraging sign from the BLS report indicated that average hourly earnings saw a sequential increase of 0.4%, surpassing the 0.3% projected by analysts.
Year-over-year, earnings advanced by 3.8%, which was also above the expectation of 3.7% growth..