Cool jobs report sets stage for interest rate cut
Nick Rummell
MANHATTAN (CN) — The U.S. labor market is cooling at a significant rate, with the federal jobs report coming in lower than forecast for the second straight month.
The 142,000 jobs gained in August, according to the Bureau of Labor Statistics, is moderately lower than the 161,000 median forecast. Fortunately, the unemployment rate held steady at 4.2%, in line with expectations and lower than last month’s 4.3% reading.
However, revisions to the two previous months’ jobs report were even more significant, with June’s report losing 61,000 of the originally reported 179,000 jobs and July’s report dropping by 25,000 jobs. Last month, the bureau released its preliminary revisions to U.S. payrolls, which showed that 818,000 fewer jobs had been gained from April 2023 to March 2024 than originally thought.
A few bright spots can be found, however. Construction jobs gained by 34,000, close to double the average monthly gain of 19,000 during the last 12 months. The health care sector also picked up 31,000 jobs, though that was half its average monthly gain.
Hourly earnings gained 0.4%, increasing by 3.8% over the last year.
“Overall, [the jobs report] is still consistent with an economy experiencing a soft landing rather than plummeting into recession,” Paul Ashworth, chief North America economist at Capital Economics, wrote in an investor’s note. “We suspect the Fed will start with a 25 [basis point] cut, but acknowledge it’s a close run decision.”
The federal jobs report was better than the one from payroll company ADP, which showed a 99,000 job gain in August. While still a gain, it represents the fifth consecutive month of declining job gains and a far cry from the consensus forecast of roughly 140,000 jobs.
Nearly all the employment increase came from service-providing companies, which picked up 72,000 jobs. Southern states also saw a greater increase in job growth, netting 55,000 jobs compared with the 52,000 jobs gained among Northeastern, Western, and Midwestern states.
“The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth,” said Neal Richardson, chief economist at the ADP. “The next indicator to watch is wage growth, which is stabilized after a dramatic post-pandemic slowdown.”
On the wage front, job-stayers saw a 4.8% year-over-year increase in wages, which was in line with last month’s employment report. Job changers saw a slight uptick in annualized wages to 7.3%.
On Wednesday, the bureau released its July job openings and labor turnover survey, known as the JOLTS report, which showed a cooling employment landscape.
The agency reported that job openings dropped 3% to hit the lowest level since the start of 2021 and an annualized decline of 12.9%. Job openings for June also were revised lower by 274,000 jobs.
“Although job openings fell sharply in July, the totality of the JOLTS data points to a labor market that continues to normalize, rather than one rapidly deteriorating,” Thomas Ryan, North America economist at Capital Economics, wrote in an investor’s note.
Layoffs are clearly not the problem with the employment landscape, as the JOLTS report shows they remain at pre-pandemic levels. .The Labor Department’s weekly unemployment report on Thursday showed a decrease in initial claims filed during the last week of August, while the four-week average of claims filed has been revised downward slightly.
Still, experts wonder if employment data could persuade the Federal Reserve to slash interest rates by more than the 0.25% most analysts predict.
“The Fed’s concerns about inflation are receding, freeing the Fed to focus on downside risks to labor market,” Nancy Vanden Houten, U.S. lead economist at Oxford Economics, wrote in an investor’s note. “However, for now, we think the labor market is solid enough to withstand a measured pace of rate cuts,” she wrote.