The US Department of Labor released a report on Friday (September 6) showing that the non-farm payroll employment increased by 142,000 in August, below the Dow Jones prediction of 161,000. This indicates a continued slowdown in the labor market, clearing the way for the Federal Reserve to cut interest rates this month. The unemployment rate dropped slightly to 4.2%, in line with expectations.
In addition to releasing the employment data for August, the Labor Department’s Bureau of Labor Statistics also revised down the non-farm payroll employment for June from an initial report of 179,000 to 118,000; and for July from an initial report of 114,000 to 89,000.
The employment report on Friday also revealed that the unemployment rate for August was 4.2%, with 7.1 million unemployed. Both the unemployment rate and the number of unemployed are higher compared to a year ago, when the unemployment rate was 3.8% and the number of unemployed was 6.3 million.
Breaking down by specific industries, the construction sector led job growth with an addition of 34,000 jobs in August. Other sectors with significant growth include healthcare (31,000) and social assistance (13,000).
However, the manufacturing sector lost 24,000 jobs in August.
Average hourly earnings, a gauge of inflation, increased by 0.4% (or 14 cents) to $35.21 in August compared to the previous month, marking a 3.8% increase from a year ago. Both the month-on-month and year-on-year increases exceeded expectations of 0.3% and 3.7%, respectively. Employee work hours increased by 0.1 hour to 34.3 hours.
The market believes that the new data released by the Labor Department has paved the way for a significant interest rate cut by the Federal Reserve. The only question now is the extent of the rate cut.
According to CNBC, Seema Shah, Chief Global Strategist at Principal Asset Management, stated that for the Fed, the decision ultimately boils down to weighing which risk is greater: reigniting inflation pressures with a 50 basis point cut, or facing a threat of recession with a 25 basis point cut.
Most Fed officials also indicate that they expect rates to go down. Fed Chair Jerome Powell recently mentioned that the time for adjusting policies has come, but he did not specify what this meant.
During a speech on Friday morning, New York Fed President John Williams voiced support for an interest rate cut.
Williams stated at the Council on Foreign Relations: “Given the current state of the economy and the expectation for inflation to reach 2%, it is now appropriate to adjust the degree of monetary policy accommodation by lowering the target range for the federal funds rate.”