Is a larger-than-anticipated Fed cut on the way?
The US labor market failed to meet growth forecasts last month, a cooldown that marks a potential warning sign for the Federal Reserve as it weighs up how much to cut interest rates in the months ahead.
Bureau of Labor Statistics data released on Friday morning showed that nonfarm payrolls increased by 142,000 last month, with the three-month average hitting its lowest level for over four years.
Job losses in the manufacturing, retail trade and information sectors contributed to the subdued August performance, although the unemployment rate fell for the first time in five months to 4.2%.
With the Fed next scheduled to meet on interest rates on September 17-18, the sluggish labor market will increase speculation that an oversized rate cut of 50 basis points could be on the way.
Payroll employment rises by 142,000 in August; unemployment rate changes little at 4.2% https://t.co/ZwrVfLviqL #JobsReport #BLSdata
— BLS-Labor Statistics (@BLS_gov) September 6, 2024
The August figures confirmed that the US job market is slowing, according to Mortgage Bankers Association senior vice president and chief economist Mike Fratantoni. He said that while the unemployment rate had dipped, it would likely move higher in the coming 12 months – potentially to the 5% mark.
Still, Fratantoni isn’t convinced that a bigger cut than previously expected will arrive in September. “Federal Reserve officials have recently pivoted from a primary focus on inflation to a more balanced view,” he said, “with concerns about inflation and employment.
“This report highlights that such a pivot makes sense, and that a 25-basis-point cut at its September meeting is a sensible first step at this time.”
Average hourly wages increased by 3.8% compared to the same time last year, while wages for production and nonsupervisory employees were up by 4.1%.
Other indicators of a cooling labor market included a Fed survey of regional businesses released this week, which suggested that employers have recently been taking a more cautious approach to hiring.
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