The U.S. labor market showed signs of cooling in August, with job growth slowing yet staying positive, which could allow the Federal Reserve to take a cautious approach to interest rate cuts later this month.
The Bureau of Labor Statistics reported that total nonfarm payroll employment rose by 142,000 in August, falling below the average monthly increase of 202,000 over the past year. Meanwhile, the unemployment rate edged down to 4.2% from 4.3%.
Key Takeaways from the August Employment Situation Report.
- Total nonfarm payroll employment increased by 142,000, falling short of market expectations.
- June job gains were revised downward from 179,000 to 118,000.
- July job gains were revised downward from 114,000 to 89,000.
- The unemployment rate held steady at 4.2%.
- Job growth was noted in the construction and health care sectors.
- Manufacturing employment declined by 24,000.
- Average hourly earnings rose by 0.4% month-over-month and 3.8% year-over-year
Overall, the report was mixed and somewhat cooler, but largely in line with market expectations, as outlined in the Babypips.com NFP Event Guide.
Market Responses
The U.S. dollar exhibited mixed reactions against major currencies following the jobs report release. Initially, there was a sharp movement across most currency pairs, likely a knee-jerk response to the slower job growth and downward revisions for June and July’s employment figures.
However, the market quickly shifted back to a bullish stance on the dollar as traders reassessed the data. Despite the weaker-than-expected job growth, the overall figures remained relatively healthy, leading to a reduced likelihood of an aggressive rate cut, as indicated by the CME FedWatch Tool.
As of now, the probability of a 25 basis point rate cut by the Fed in September has increased from 60% to 75%, while the chance of a 50 basis point cut has decreased from 40% to 25%.
