US jobs miss target as hopes rise of a bumper interest rate cut

The United States generated 142,000 jobs in August, helping to push the country’s unemployment rate lower and setting the US Federal Reserve on track to cut interest rates this month for the first time in four years, possibly by as much as 50 basis points.
Monthly payrolls figures fell below the 160,000 estimated by economists in August, while July’s initial jobs figure of 116,000 was downgraded to 89,000 by the US Bureau of Labor Statistics. The June payrolls figure was revised down by 61,000 to 118,000.
Shortly after the jobs data was published, traders raised their bets on the chance of a bumper rate cut to 47 per cent from 40 per cent, according to the closely watched CME FedWatch Tool.
The perceived likelihood of a 25-basis-point reduction to a range of 4.75 per cent to 5 per cent, from the present span of 5.25 per cent to 5.5 per cent, fell to 53 per cent, from 60 per cent a day earlier.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, the consultancy, said that the Fed’s decision on how far to loosen policy remained “on a knife-edge”. If the Fed opted for a quarter-point cut this month, ratesetters may be forced “to be bolder at subsequent meetings. We continue to expect 1.25 percentage points of easing by the end of the year.”
Justin Wolfers, a professor of economics at the University of Michigan, said the decision by the Fed’s ratesetting federal open market committee would be the “first seriously contested meeting” in years, after the central bank began aggressively tightening its policy in 2022. He said the chances of a larger rate cut remained 50-50.
Others were more cautious. Economists at Lloyds Bank said that a 25-basis-point Fed rate cut this month was “more likely”, but added “upcoming US data releases may yet sway the final decision.”
Despite employment growth falling short over the past three months, the unemployment rate dipped from 4.3 per cent to 4.2 per cent after a surprise jump in July. A measure of hourly earnings rose by 0.4 per cent on the month, up from 0.2 per cent in July, with yearly wages growth rising by 3.8 per cent, from 3.6 per cent previously.
Investors reacted to the August jobs data by buying the dollar and US bonds, while yields on two-year treasury bonds fell by seven basis points to 3.66 per cent and slid by four basis points on benchmark ten-year bonds to 3.67 per cent. Yields fall when a bond’s price increases. The dollar rose by 0.2 per cent against a basket of leading currencies, pushing down the value of the pound by 0.1 per cent to $1.321.
On Wall Street, indices turned negative very quickly following the data release. By the close in New York on Friday the broadly based S&P 500 was down 1.7 per cent at 5,408.42, taking its losses over the four-day trading period, after Monday’s Labor Day holiday, to 4.3 per cent. The Dow Jones industrial average fell 1 per cent on the day to 40,345.41, for a weekly drop of 2.9 per cent. For both indices it was the worst weekly performance since March 2023.
The technology-heavy Nasdaq Composite was down 2.6 per cent on the session and 5.8 per cent on the week, its biggest weekly drop since January 2022.
Meanwhile, Brent crude, the international benchmark, erased all its gains over the year to date after a 7.6 per cent fall over the week and recorded its lowest settle value since early December 2021.
Construction and healthcare were the leading sectors for employment growth on the month in August, at 34,000 and 31,000, respectively.
Last month Jerome Powell, the chairman of the Fed, all but confirmed that the central bank would cut interest rates at its next meeting on September 18, the first time it will have loosened monetary policy in four years, over concerns about a slowing labour market.