The U.S. economy created slightly fewer jobs than expected in August, reflecting a slowing labor market while also clearing the way for the Federal Reserve to lower interest rates later this month. Nonfarm payrolls expanded by 142,000 during the month, up from 89,000 in July and below the 161,000 consensus forecast from Dow Jones, according to a report from the Labor Department’s Bureau of Labor Statistics.
The unemployment rate ticked down to 4.2%, as expected, with the labor force expanding by 120,000 for the month. The household survey, which is used to calculate the unemployment rate, showed employment growth of 168,000, with part-time employment increasing by 527,000 and full-time falling by 438,000.
Markets initially showed little reaction to the data, but later sold off. Construction led job growth with 34,000 additional jobs, while manufacturing lost 24,000. Average hourly earnings increased by 0.4% on the month and 3.8% year-on-year.
The data comes as the Fed is poised to make a decision on interest rates at its upcoming meeting in September. Markets had been pricing in a rate cut, with speculation about the size of the cut ranging from a quarter point to half a percentage point. Most analysts believe that the Fed will opt for a cautious approach given subdued inflation pressures.
The recent narrative around economic data indicates continuing growth but a slowdown in the labor market. Private companies added just 99,000 jobs in August, according to ADP, while layoffs surged and hiring slowed. Despite the mixed data, most Fed officials have signaled their support for rate cuts.
New York Fed President John Williams endorsed rate cuts in a recent speech, stating that with the economy in balance and inflation on track, it is appropriate to reduce the target range for the federal funds rate.
Overall, the August jobs report highlights the delicate balancing act facing the Fed as it navigates economic growth and inflation. The decision on interest rates will have far-reaching implications for the economy and financial markets in the coming months. As the Fed weighs its options, investors and consumers alike will be watching closely for any signals of future policy direction.
