Chief Economist Commentary – August Jobs Report – Labor Market Gives Fed Greenlight for September Rate Cut

August Jobs Report – Labor market gives Fed Greenlight for September rate cut

 

• “Overall, today’s report signals that the U.S. labor market continues to cool gradually, which supports the Federal Reserve’s impending pivot from an inflation-fighting campaign to buoying a cooling labor market.” 

 

• “10-year Treasury yields are essentially flat, implying market sentiment is unchanged and the Fed cuts are priced into mortgage rates. The very rate-sensitive housing sector remains sluggish due to the affordability constraints caused by record-high house prices and still-elevated mortgage rates.”

 

• “The August labor data shows improvement over July, but ongoing softening, which likely sets up the Fed to kick off its rate-cutting cycle with a 25-basis point cut later this month. Had the labor market deteriorated more significantly, it may have triggered the Fed to consider a 50-basis point cut in September.”

 

• “The timing and pace of future Fed rate cuts will largely depend on what incoming economic data suggests about cooling inflation and softening labor market conditions in the coming months. Assuming no surprise jump in inflation next week and continued labor market softening in the months ahead could certainly bolster the argument for additional rate cuts in November and December. The benefit of these rate cut expectations are already appearing on the 30-year fixed rate mortgage.”

 

 

Just the data:

 

• Non-farm payroll employment increased by 142,000, which was 23,000 below consensus estimates of 165,000.

 

• Total non-farm payrolls in June were revised down by 61,000, from 179,000 to 118,000. July revised down by 25,000, from 114,000 to 89,000. With these revisions, employment in June and July are 86,000 lower than previously reported.

 

• The unemployment rate in August fell to 4.2%, as expected, from 4.3% in July.

 

• Average weekly hours worked inched up in August to 34.3.

 

• Construction job growth remains resilient, increasing by 34,000, almost double the monthly average of 19,000 over the last 12 months. Employment in specialty trade contractors continues trending up, adding 14,000 jobs.