The markets were anxiously awaiting Friday’s release of the August unemployment report. Will it impact what the FOMC does later this month?
Markets were a mixed bag on Friday after the U.S. Bureau of Labor Statistics released the August nonfarm payrolls report, which was itself a bit of a mixed bag.
The good news is that the unemployment rate ticked down to 4.2% in August, from 4.3% in July. This was in line with analysts’ expectations.
Some 142,000 jobs were created in August, up from 89,000 new jobs in July. The July total was revised down from 114,000.
However, the jobs numbers were below what economists estimated, as the consensus called for 161,000 jobs created in August.
The S&P 500 was down about 70 points, or 1.3% on Friday morning, while the Nasdaq Composite was off 340 points, or 2%. But the Dow Jones Industrial Average fell some 288 points, or 0.7% while the Russell 2000 fell 33 points, or 1.5%.
With the Federal Open Market Committee (FOMC) meeting soon to discuss the federal funds rate, what impact will the nonfarm payrolls report have on the FOMC and interest rates?
Not as bad as July
While the results were not great, August nonfarm payrolls were certainly an improvement on the July numbers. The BLS initially said 114,000 jobs were created in July, but that has since been revised down to 89,000. That was about half the 185,000 new jobs that analysts had expected in July. The unemployment rate climbed to 4.3% in July, from 4.1%, reaching its highest level since October of 2021.
The disappointing July results caused the markets to crash and have their worst day in two years.
The August numbers were solid, if not slightly disappointing. The 4.2% unemployment rate was down from July, but it is up compared to 3.8% a year ago in August. The 142,000 new jobs were less than the 202,000 average over the past 12 months.
Looking at different demographics, the unemployment rate was 4.0% for men and 3.7% for women. Further, it was 3.8% for Whites 6.1% for Blacks, 4.1% for Asians, and 5.5% for Hispanics – all roughly the same as the previous month.
Construction and healthcare industries created most new jobs
Most of the job growth in August came in the construction and healthcare industries. Construction nonfarm payrolls rose by 34,000 in August, above the average monthly gain of 19,000 over the past 12 months. Heavy and civil engineering construction accounted for 14,000, while nonresidential specialty trade contractors also added 14,000 jobs.
Healthcare added 31,000 jobs last month, which was below the average monthly gain of 60,000 over the prior 12 months. The biggest gains were in ambulatory health care services, which added 24,000 jobs.
The hardest hit area was manufacturing, which lost 24,000 jobs, reflecting a decline of 25,000 in durable goods industries.
The employment showed little change in most industries, including mining, quarrying, and oil and gas extraction; wholesale trade; retail trade; transportation and warehousing; information; financial activities; professional and business services; leisure and hospitality; other services; and government.
Also, average hourly earnings increased by 14 cents, or 0.4%, to $35.21. Average hourly earnings have increased by 3.8% over the past 12 months. Further, the average workweek on private nonfarm payrolls edged up by 0.1 hour to 34.3 hours in August.
Does it change the calculus for the Fed on rates?
Markets were jittery all week leading up to the nonfarm payrolls report, as one of the last major economic reports to come out before the FOMC meets September 17-18.
Did this report do anything to change the mindset of the committee, which is expected to lower interest rates for the first time in four years? Many economists, including Dan Katz, former senior advisor at the U.S Treasury and current adjunct fellow at the Manhattan Institute, say it does not.
“The August report should temper calls for more dramatic action from the Federal Reserve — such as a 50-basis point cut in September — which could unnecessarily increase risk to the Fed’s inflation mandate given inflation is still running materially higher than the Fed’s stated target,” Katz said.
Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA), concurred.
“Federal Reserve officials have recently pivoted from a primary focus on inflation to a more balanced view, with concerns both about inflation and employment,” Fratantoni said. “This report highlights that such a pivot makes sense, and that a 25-basis-point cut at its September meeting is a sensible first step at this time.”
The next big report is the August Consumer Price Index, which comes out on September 11.
