US Job Growth Slows, Unemployment Rises: Rate Cut Outlook Intensifies

US Job Growth Slowdown Sparks Concerns

August's data revealed a notable slowdown in US job growth, coupled with a rise in the unemployment rate, igniting discussion about a potential worsening of the labor market. According to the US Bureau of Labor Statistics report, nonfarm payrolls increased by just 22,000 in August, significantly below market forecasts of a 75,000 increase. Simultaneously, the unemployment rate edged up to 4.3%, its highest level since late 2021.

Job Report Details

Furthermore, average hourly earnings grew by 0.3% month-over-month and 3.7% year-over-year, aligning with market expectations. However, more notably, the prior two months' data were revised downward by a combined 21,000. The Bureau of Labor Statistics noted that June's nonfarm payrolls were revised down from 14,000 to -13,000, marking the first decline since December 2020. July's data was revised up from 73,000 to 79,000.

Market Reactions

Following the data release, gold continued to hit new record highs, briefly approaching the $3590 mark. The US Dollar Index fell by over 25 points in the short term.

Deeper Dive into Labor Market Trends

With revisions, US job growth has averaged only 29,000 per month over the past three months. Jobs have come in below 100,000 for the fourth month in a row, continuing the weakest job growth momentum since the pandemic. Earlier, the July jobs report showed that 258,000 fewer jobs were created in May and June than previously estimated.

Other Data Supporting Slowdown

Additionally, ADP data released Thursday from the private sector employment services provider showed that the private sector added 54,000 new jobs last month. Labor Department data also showed that initial jobless claims for last week came in at 237,000, the highest since June.

Sector Breakdown

Sector-wise, the report showed that education and health services were the biggest job creators, adding 46,000 employees during the month. The largest losses were in durable goods and business services, which lost 19,000 and 17,000 jobs in August, respectively.

Potential Impact on the Economy

These latest labor market data may exacerbate concerns about the labor market's resilience. In recent months, US job growth has slowed significantly, job openings have declined, and wage growth has decelerated, all putting pressure on broader economic activity.

Rate Cut Expectations

Futures traders have increased bets that the Federal Reserve will begin cutting interest rates rapidly and consecutively starting this month, continuing to bet that the Fed will cut rates at its September meeting. Fed Chairman Jerome Powell signaled a rate cut at his speech at the Federal Reserve's Jackson Hole annual symposium last month, and policymakers will see the latest CPI data before meeting this month.

Expert Opinions

Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities, said: "Weakness has emerged in the labor market, and the transition in job growth from the public to the private sector will require lower interest rates. The Fed will begin cutting rates this month, and we expect a series of subsequent cuts. The forward curve shows that rates will fall to neutral by the end of 2026, but that timeline is likely to move forward."

Market Reaction

Matt Maley, chief market strategist at Miller Tabak, said: "Typically, stock market investors get excited because the Fed might be more dovish. That's most likely going to be the initial reaction. However, history tells us that if lower bond yields are signaling a significant slowdown in economic growth, that's going to be negative for the stock market."