Stalling Jobs Growth May Be Just What the Market Needs

Friday marked the Bureau of Labor Statistics’ first monthly jobs report since President Donald Trump said July’s update was “a total scam” and “rigged” against him, contributing to his decision to fire the bureau’s commissioner.

New messenger. Same message. The latest report showed the US job market is stalling. The Federal Reserve saw the same message, increasing the likelihood of an interest-rate cut. 

Hope in Strange Places

The economy added only 22,000 jobs in August, and the unemployment rate ticked up one-tenth of a percentage point to 4.3%, officials said. That fell well short of the 76,500 jobs expected by economists polled by Factset, and trailed the (upwardly revised) 79,000 jobs added in July. Manufacturing jobs fell for the fourth month in a row, underscoring the challenges of producers who have seen their costs rise under tariffs.

The revision the bureau made to its June data was notable: The agency now says jobs actually fell — by 13,000 — for the first time since December 2020, ending the second-longest run of employment gains on record. “The slowdown over the past six months has been driven in large part by tariff-related uncertainty and elevated inflation, which have curbed consumer spending and reduced labor demand,” said Mike Sanders, the fixed income head at Madison Investments. “The biggest risk now is that labor market weakness begins to accelerate from here.” He and other analysts believe the Federal Reserve will act to prevent that from happening, something markets are banking on as the Fed’s September 17 interest-rate decision nears:

• John Luke Tyner, the head of fixed income at Aptus Capital, said the numbers were “what the market was hoping for,” adding that it “solidifies the 25 [basis-point] September cut and likely more to come quicker if data stays on this softer trend.” Investors expect that a rate cut will likely stimulate sluggish M&A activity and other dealmaking by lowering borrowing costs.
• “Despite inflation remaining above target, the Fed appears more concerned with helping the labor market than forcing inflation down, and importantly, it does not view wage growth as a risk that would derail easing,” said Sanders. While rate cuts are generally viewed as a good thing for stocks, US equity markets were down slightly on Friday amid investor concerns that slowing job growth could signal broader economic challenges.

Two in a Row: Fed Chair Jerome Powell, for one, has signaled that a rate cut may be on the way, which would come as a surprise to virtually no one. What might surprise some would be back-to-back rate cuts in the first two months of fall, but that’s what most traders are betting on as of Friday, according to CME Fedwatch.