The U.S. labor market showed signs of cooling in August, with job growth slowing but remaining positive, potentially paving the way for a measured approach to interest rate cuts by the Federal Reserve later this month.
The Bureau of Labor Statistics reported today that total nonfarm payroll employment increased by 142,000 in August, below the average monthly gain of 202,000 over the prior 12 months. Meanwhile, the unemployment rate changed ticked lower to 4.2% from 4.3% previous.
Key points from the August Employment Situation Summary:
- Total nonfarm payroll employment rose by 142,000, below market expectations
- June’s job gains were revised down from 179K to 118K
- July’s job gains were revised down from 114K to 89K
- The unemployment rate remained relatively stable at 4.2%
- Construction and health care sectors saw job gains
- Manufacturing employment edged down by 24,000
- Average hourly earnings increased by 0.4% month-over-month and 3.8% year-over-year
Link to the August Employment Situation Summary
Overall, this report was mixed and arguably a bit cooler, but generally inline with what markets were expecting (as discussed in the Babypips.com NFP Event Guide).
Market Reactions
U.S. dollar vs. Major Currencies: 5-min
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar showed mixed reactions against major currencies following the release of the jobs report. Initially, there was a sharp move across most pairs, likely a knee jerk reaction to the slower jobs growth rate and downward revisions to June and July’s net change numbers.
But the market swiftly reversed back into Dollar bull mode, likely a shift in sentiment due to traders digesting the information and realizing that while we did see weakness relative to expectations, those numbers are still relatively healthy and likely lower the case for an aggressive rate cut, as signaled by the CME FedWatch Tool.
As of this writing, the odds of a 25 bps Fed rate cut in September rose from 60% yesterday to 75%, while the odds of a 50 bps cut fell from 40.0% to 25.0%