August’s nonfarm payrolls report confirmed that America’s economy continued to cool last month. But despite another jobs miss and downward adjustments to prior-month numbers, some experts viewed the print as better than what bears were expecting.
The Labor Department reported Friday that nonfarm payrolls grew by 142,000 in August, falling short of economists’ estimates for 161,000. Figures for the past couple of months were revised lower, too. July’s figure was cut by 25,000 jobs created, to just 89,000, while June’s tally declined to 118,000—off 61,000 from last month’s revised figure and 88,000 lower than its original print.
The jobs miss also follows an August report from the Labor Department that showed a deep downward revision of 818,000 jobs for monthly payroll figures across the 12-month period ended in March.
And yet, there’s enough positive data that analysts and strategists remain largely optimistic that while we’re seeing economic slowing, we’re not witnessing a screeching halt. For instance, August’s report represented a 44th consecutive month of payroll gains. Hourly earnings growth of 0.4% month-over-month was also better than the 0.3% expected. And despite the headline payrolls miss, August’s unemployment rate came in at 4.2%, which was on par with consensus expectations and a notch below July’s rate of 4.3%.
“The July increase in the unemployment rate was likely a bit misleading, as it may have been influenced by the denominator effect of an expanding labor force,” says Jason Pride, Chief of Investment Strategy & Research at Glenmede. “This time around, the absolute figures underneath the unemployment rate calculation were all moving in the right direction. The number of employed persons increased 168,000, the number of unemployed decreased by 48,000, and the civilian labor force grew by 120,000.
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“More people with jobs, fewer people seeking jobs and a larger pool of available labor are solid indications of a labor market that is normalizing, not deteriorating.
Here’s a brief look at the jobs report’s most pertinent details, which paint a picture of a slowing (but still growing) economy:
- August payrolls: +142,000 (vs. +161,000 est.)
- August unemployment: 4.2% (vs. 4.2% est.)
- August hourly earnings: +0.4% (vs. +0.3% est.)
- July payrolls (revised): +89,000 (vs. +114,000 previously)
- June payrolls (revised): +118,000 (vs. +179,000 previously)
Digging deeper into the August jobs report …
Similar to July, last month’s job losses were largely modest, though manufacturing saw a decline of 24,000 jobs while retail shed 11,000.
Health care employment improved by 31,000, though that was well below its 12-month average gain of 60,000. Construction exceeded its 19,000-job monthly average with employment gains of 34,000 in August. Social assistance added 13,200 jobs, and financial activities gained 11,000.
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“This is an improvement from July’s report but continues the broader trend lower, especially when factoring in -86,000 in new revisions,” says Adam Hetts, Global Head of Multi-Asset at Janus Henderson Investors. “The unemployment rate fortunately doesn’t give any new reasons for concern. Overall, the report stays within the range of a slowing but not slow economy and doesn’t outright threaten the soft landing narrative nor scream 50 basis points in September cuts.”
“After much speculation over the course of 2024, we expect the Fed to announce the first rate cut later in September, and it is not out of the realm of possibility that it will be a 50-basis-point cut,” Steve Rick, Chief Economist at mutual insurance firm TruStage. “We are hopeful that over the next three FOMC meetings, the Fed will continue cutting rates to avoid deterioration of the labor market any more than it already is.
“Over the next couple of months, we anticipate a perfect storm where the Fed will hit both their targets, lowering inflation to 2% while the labor market reaches equilibrium. At the same time, we expect the economy will continue to grow at a 3% rate for the remainder of 2024, keeping us far out of reach from a recession.”
Expert Reactions to August’s Jobs Report
Here’s what strategists, financial managers, and other experts had to say about the August employment situation:
Scott Helfstein, Head of Investment Strategy, Global X
“There has been a lot of talk that the Fed is too late. The 142,000 new jobs, relative strength of the consumer, and stabilizing prices push against that narrative a bit even though the number was a bit below expectations. There is no crisis, and the Fed can be patient. We expect a rate cut in September, but they are likely to start the easing cycle with caution.
“Powell tried to introduce the concept that the market was returning to pre-pandemic trends, which had been averaging about 114,000 per month. This is obviously well above. The economy is coming out of the COVID and post-COVID shocks, and now we get to see what the new normal starts to look like.”
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Lindsay Rosner, Head of Multi-Sector Investing, Goldman Sachs Asset Management
“Labor market continues to show signs of deceleration. That is real. This report doesn’t clearly state 25 or 50 basis points for the first cut, which was the answer the market was hoping to get. What is clear is the Fed is cutting and upcoming Fed speak will help shed some light on the internal debate around the September meeting.”
Sonu Varghese, Global Macro Strategist, Carson Group
“August payroll data indicate risks are rising as the labor market is clearly softening, and the Fed needs to step in to cut off tail risks. The report seals the deal for a September rate cut, but the big question really is whether the Fed goes big (by cutting 50 basis points) to get in front of rising risks.”
Josh Jamner, Investment Strategy Analyst, ClearBridge Investments
“The labor market is perhaps best characterized as cooling but still healthy, with cooling being the key determinant to rate cuts given Powell’s Jackson Hole speech. There are details within this print that can support both sides of the “25 vs. 50 basis points’ debate for the September meeting, and investors will focus on next week’s inflation data as the final clue.”
Emily Roland, Co-Chief Investment Strategist, John Hancock Investment Management
“Slowing economic growth is one key reason we have been emphasizing high quality bonds in portfolios; the elevated income available is another. The yield on the aggregate bond index is down from year-to-date highs but still sits near the highs of the last 15 years at 4.25%. Remember that in an average cutting cycle, the Fed cuts a total of 4.25% (or 17 cuts of 25 basis points). During that period, the 10-year treasury yield falls on average by roughly 2.5% to 3%. As such, the total return potential in bonds remains very attractive. As bond yields chop around here, consider adding to fixed income positions in the intermediate part of the curve to lock in elevated yields.”
