US hiring fell short of forecasts in August after downward revisions to the prior two months, a development likely to fuel ongoing debate over how much the Federal Reserve should cut interest rates.
Nonfarm payrolls rose by 142,000 last month, leaving the three-month average at the lowest since mid-2020, Bureau of Labor Statistics data showed Friday. The unemployment rate edged down to 4.2%, the first decline in five months, reflecting a reversal in temporary layoffs.
The median forecast in a Bloomberg survey of forecasters called for 165,000. Bloomberg Economics predicted 145,000.
Treasury yields fluctuated as traders boosted bets that Fed officials could reduce interest rates by a half percentage point at their upcoming meeting to guard against sustained weakness in hiring. S&P 500 futures and the dollar were little changed.
“The labor market is clearly softening, and the Fed needs to step in to cut off tail risks,” Sonu Varghese, a global macro strategist at Carson Group, said in a note after the release. “The report seals the deal for a September rate cut, but the big question really is whether the Fed goes big.”
Other reports suggest the job market is losing steam. While layoffs remain largely subdued, many companies are putting off expansion plans amid high borrowing costs and uncertainty ahead of the November presidential election. A Fed survey of regional businesses published Wednesday indicated employers have become more selective in hiring in recent weeks, with some cutting hours and leaving open positions unfilled.
Hiring was weighed down by job losses in the manufacturing, retail trade and information sectors. Private payrolls over the past three months rose by 96,000 on average, marking the first time it fell below 100,000 since the onset of the pandemic. Employment growth was concentrated in leisure and hospitality, construction and health care.
The participation rate — the share of the population that is working or looking for work — was unchanged in August at 62.7%. The rate for workers ages 25-54, also known as prime-age workers, edged lower for the first time since March.
Fed officials also pay close attention to wage growth, as it can help inform expectations for consumer spending — the main engine of the economy. Average hourly earnings rose 3.8% from a year ago. Wages for production and nonsupervisory employees, which covers the majority of workers, advanced 4.1%.
In prepared remarks published after the release of the jobs numbers, New York Fed President John Williams said it is now appropriate for the central bank to reduce interest rates, given progress on lowering inflation and a cooling in the labor market.
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