The U.S. economy created fewer jobs than the market projected in August as the overheated labor market of the past few years continues to show signs of cooling off.
Last month, payrolls increased by 142,000, falling short of the consensus estimate of 160,000, according to the Bureau of Labor Statistics (BLS).
The unemployment rate eased to 4.2 percent, down from 4.3 percent in July. This was in line with economists’ expectations.
Average hourly wages surged at a higher-than-expected pace of 0.7 percent, up from a 0.1 percent drop in July—this was revised from the initial report of 0.2 percent growth. Average hourly earnings also climbed to a better-than-expected year-over-year rate of 3.8 percent, up from 3.6 percent.
The labor force participation rate was unchanged at 62.7 percent. Average weekly hours ticked up to 34.3 from 34.2.
Much of the job creation was concentrated in construction (34,000), health care (31,000), government (24,000), and social assistance (13,000).
The manufacturing sector lost 24,000 positions and has “shown little net change over the year,” the BLS said.
Revisions, which have played a significant role in the monthly employment data for the last two years, were sizable. The number of jobs created in June was adjusted lower from 179,000 to 118,000. The number of positions added in July was also changed from 114,000 to 89,000.
So far this year, the total number of downward job revisions equals 372,000.
The number of people working two or more jobs increased by 65,000 to 8.538 million.
In August, full-time jobs plummeted by more than 400,000, and part-time employment increased by 527,000.
After all of the revisions, the economy has created 1.333 million new jobs in the first eight months of 2024. Total employment has risen 1.5 percent over the past year, representing the slowest growth rate since March 2021.
The July jobs report ignited slowdown fears as the data activated a key recession indicator known as the Sahm rule. This is a tool that signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.5 percentage points or more relative to its previous 12-month low.
Market Reaction
The U.S. stock market was still red following the August jobs report. The leading benchmark indexes fell by as much as 0.7 percent in pre-market trading.
U.S. Treasury yields tumbled across the board, with the benchmark 10-year yield sliding below 3.69 percent. The 2-year yield sank to 3.65 percent, and the 30-year bond slumped underneath 4 percent.
The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, added to its Sept. 6 losses and fell below 101.00. The index is poised for a weekly loss of about 1 percent and is down 0.6 percent year-to-date.
A worse-than-expected jobs report indicates a “negative economic development” and cements a rate cut by the Federal Reserve later this month, says Mark Malek, the CIO at brokerage firm Siebert.
“Fed Funds futures are now predicting slightly better than even odds of a -50 basis-point cut and a 100% chance of a -25 basis-point cut,” he said in a note.
Peter Schiff, the chief economist and global strategist at Euro Pacific Management, warns that the newest employment figures might point to higher inflation down the road, referencing the lost manufacturing jobs and added government positions.
“Replacing goods-producing jobs with govt. jobs means higher #inflation,” he said on X (formerly Twitter).
Week of Labor Data
The Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS) showed that the number of job openings declined by 237,000 to 7.673 million in July, the lowest level since January 2021. This was down from 7.91 million in June—revised lower from the initial reading of 8.184 million—and fell short of the market forecast of 8.1 million job vacancies.
The number of job quits fell to 3.277 million, the lowest reading since September 2020.
The JOLTS report “reinforces the current narrative of job market softening, including slower hiring and a rising unemployment rate,” said Mark Hamrick, the senior economic analyst at Bankrate.
According to payroll processor ADP’s National Employment Report, private employers added 99,000 new jobs in August, far below the consensus projection of 145,000. By comparison, in July, companies created 111,000 positions, which was also adjusted down from 122,000.
“The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth,” said Nela Richardson, the chief economist at ADP, adding that the next key metric to monitor is wage growth.
ADP figures showed that year-over-year pay gains were flat: 4.8 percent for job-stayers and 7.3 percent for job changers.
Layoffs climbed to their highest in five months, with U.S.-based employers announcing nearly 76,000 job cuts in August, according to outplacement firm Challenger, Gray & Christmas. This represented the largest number for the month since 2009, excluding the coronavirus pandemic in 2020.
“August’s surge in job cuts reflects growing economic uncertainty and shifting market dynamics,” said Andrew Challenger, the organization’s senior vice president, in a statement. “Companies are facing a variety of pressures, from rising operational costs to concerns about a potential economic slowdown, leading them to make tough decisions about workforce management.”
While the U.S. labor market is showing signs of weakness, first-time unemployment benefit claims data came in better than expected.
Initial jobless claims eased to 227,000 for the week ending Aug. 31, down from 232,000 in the previous week, the Department of Labor reported.
These numbers may exacerbate concerns that the employment situation is deteriorating. Softening labor data has been a chief factor in the Federal Reserve’s decision to adjust monetary policy and begin lowering interest rates as early as this month.
Investors are overwhelmingly betting that the central bank will cut interest rates by 25 basis points at the September policy meeting.
Appearing at the annual Jackson Hole economic symposium last month, Fed Chair Jerome Powell spotlighted the weakening in labor market conditions, noting that employment risks supersede inflation pressures.
“We do not seek or welcome further cooling in labor market conditions,” Powell said.
From The Epoch Times