August is expected to show an uptick in U.S. job growth, with the unemployment rate predicted to have decreased to 4.2%. This development suggests a controlled slowdown in the labor market, reinforcing expectations for a quarter-point Federal Reserve interest rate cut this month. The forthcoming employment report from the Labor Department is also set to reflect well on consumer spending, helping to alleviate recession concerns heightened by a recent jobless rate increase to 4.3% in July, the highest in nearly three years.
“The economy is going through a transition; it’s slowly kind of bending under the weight of the high interest rates,” commented Brian Bethune, an economics professor at Boston College. He believes there’s enough evidence for gradual 25 basis point rate cuts, although he sees no urgency for a steeper 50 basis point reduction.
According to a Reuters survey, nonfarm payrolls likely saw an addition of 160,000 jobs in August, up from 114,000 in July, which marked one of this year’s smallest gains. Job growth estimates for August ranged from 100,000 to 245,000. The labor market’s slowdown is attributed more to a decrease in hiring rather than an increase in layoffs, which remain at historically low levels.
Additionally, recent immigration has raised the monthly job creation needed to maintain unemployment levels, now estimated between 175,000 and 200,000 jobs. Despite Hurricane Beryl’s impact in July, a modest recovery in employment is anticipated, especially in sectors that were previously affected.
While the Bureau of Labor Statistics (BLS) reported no significant impact from Beryl on overall employment data, analysts like Nancy Vanden Houten from Oxford Economics observed notable disruptions. She noted an increase in temporary layoffs and reduced work hours in July due to the storm, particularly in construction and mining.
August’s employment figures are generally expected to be initially weak but are often revised upwards. Conrad DeQuadros, a senior economic advisor at Brean Capital, highlighted that disappointing August data have historically swayed Federal Reserve decisions in September, though retrospectively, this may have been misguided.
With the Federal Reserve’s next policy meeting scheduled for September 17-18, market predictions on CME Group’s FedWatch Tool indicated a 41% chance for a half-point rate cut and a 60% likelihood for a quarter-point cut. The ongoing recalibration of employment figures, including a downward revision from pandemic highs, continues to add complexity to labor market evaluations.