Weak US Payroll Gain Of 22,000 Cements Case For Fed Rate Cut

US job growth cooled notably last month while the unemployment rate rose to the highest since 2021, fanning concerns the labor market may be on the cusp of a more significant deterioration. 

Nonfarm payrolls increased 22,000 in August, and revisions showed employment shrank in June for the first time since 2020. The jobless rate ticked up to 4.3%, according to a Bureau of Labor Statistics report out Friday.

Traders solidified bets that the Federal Reserve will cut interest rates at its Sept. 16-17 meeting, which Chair Jerome Powell signaled in a speech last month during the central bank’s annual Jackson Hole symposium. The S&P 500 reversed earlier gains and Treasuries rallied. 

The figures heighten concerns about the durability of the labor market after the prior month’s report showed a shockingly cooler hiring picture than previously thought. Job growth has moderated materially in recent months, openings have declined and wage gains have eased, all of which are weighing on broader economic activity.

Several sectors, including information, financial activities, manufacturing, federal government and business services, posted outright declines in August. Job growth was once again concentrated in health care — and excluding that sector, total employment has declined in three of the last four months.

“The labor market is going from frozen to cracking,” Heather Long, chief economist at Navy Federal Credit Union, said in a note. “This is a white-collar and a blue-collar jobs recession.”

While July payrolls were revised slightly higher, the jobs picture looked even worse in June. The adjustments follow the sizable downward revisions seen in the last jobs report, which were the largest since 2020. Those prompted President Donald Trump to fire the BLS commissioner and accuse her, without evidence, of manipulating the numbers for political gain. 

Trump has named EJ Antoni, chief economist of the conservative Heritage Foundation, to step into the role, but he must be confirmed by the Senate first.

Accounting for the revisions in this report, employment growth in the last three months has averaged just 29,000. Payrolls have come in under 100,000 for four straight months, extending the weakest stretch of job growth since the pandemic.

In addition to the routine revisions the BLS conducts every month, the agency also administers annual revisions that benchmark the data against a series that’s more expansive, albeit less timely. A preliminary estimate of that figure is due Tuesday ahead of the final number early next year.

The payrolls data can be more volatile when businesses don’t initially respond to the survey. The collection rate for August was 56.7%, the lowest for that month since 2000. That rate typically rises above 90% in subsequent months.

Despite a warning earlier Friday that BLS was experiencing “technical difficulties,” the data came out as scheduled at 8:30 a.m. in Washington. That stirred anxiety ahead of the already highly anticipated report, especially given the agency’s past history of botched releases.

“August’s weak jobs report seals the deal for a rate cut at the Sept. 16-17 FOMC meeting. Though headline nonfarm payrolls may be overstating the weakness in hiring, the uptick in the unemployment rate suggests labor demand is weakening faster than supply.”— Anna Wong, Stuart Paul and Estelle Ou. To read the full note, click here

Economists have largely characterized the labor market as a low-hiring, low-firing environment, though layoffs are picking up somewhat. 

The increase in unemployment partly reflected re-entrants to the job market, but the number of people who have permanently lost their jobs rose to the highest in nearly four years. The number of people unemployed for 27 weeks or longer climbed to levels not seen since 2021, and there were also more Americans working part-time for economic reasons.

Job-cut announcements in August were the highest for that month since 2020, according to Challenger, Gray & Christmas. And September’s tally is already underway as ConocoPhillips, the largest independent US oil producer, said Wednesday it plans to cut as much as a quarter of its global workforce.

The Challenger report also showed a pullback in hiring plans in August, while separate figures from ADP Research and Revelio Labs pointed to slower job growth last month as well. Metrics from the Institute for Supply Management indicate employment in both manufacturing and services sectors has contracted in recent months.

The participation rate — the share of the population that is working or looking for work — rose to 62.3%. The rate for those between the ages of 25 and 54, known as prime-age workers, increased to the highest in nearly a year.

The unemployment rate for Black Americans continued to climb, rising to the highest in nearly four years, partly reflecting more people joining the workforce. The jobless rate for Hispanic workers and those without a high school diploma also rose. 

Central bankers pay close attention to how labor supply and demand dynamics are impacting wage gains — especially with inflation risks poised to the upside. The report showed average hourly earnings rose 3.7% from a year ago.