The US economy created fewer jobs than expected in August, while the unemployment rate fell slightly.
Data from the Bureau of Labor Statistics released Friday showed that the labor market added 142,000 nonfarm jobs in August, less than the 165,000 economists had expected.
At the same time, the unemployment rate fell to 4.2% from 4.3% in July. The number of new jobs created in August was higher than the revised 89,000 in July. Overall, revisions to the June and July labor market reports showed that the U.S. economy created 86,000 fewer new jobs in those months than originally reported.
Wage growth, a key indicator of inflationary pressures, rose to 3.8 percent year-on-year, following an annual increase of 3.6 percent in July. On a monthly basis, wages rose 0.4 percent, a rise that was higher than the previous month’s 0.2 percent.
Paul Ashworth, chief North American economist at Capital Economics, wrote in a note to clients that the August employment report “remains consistent with an economy experiencing a soft landing rather than plunging into recession.”
Friday’s report comes amid an ongoing debate about how much the Fed should cut interest rates at its meeting later this month. In a speech in late August, Federal Reserve Chairman Jerome Powell said the slowdown in the labor market was “unequivocally clear,” adding that the central bank “neither seeks nor welcomes a further slowdown in labor market conditions.”
Data released earlier this week pointed to further signs of a slowdown in the labor market. ADP’s National Employment Report for August showed that the U.S. private sector added 99,000 jobs during the month, well below economists’ estimates of 145,000 and less than the 122,000 in July. The August data marked the fifth consecutive month in which the number of new jobs created slowed month-on-month. Meanwhile, data released Wednesday showed that July ended with the lowest number of vacancies in the U.S. labor market since January 2021.
Still, some economists argue that signs of strength in Friday’s jobs report would be enough to prompt the Fed to cut rates by 25 basis points at its upcoming September meeting, rather than a more comprehensive 50 basis point cut.
Read more: Fed forecasts for 2024: What experts say about the possibility of a rate cut
“The overall solid increase in payrolls in August, the decline in the unemployment rate and the increase in average hourly earnings are probably not enough for Fed officials to initiate the rate-cutting cycle with a 50 basis point cut on September 18,” Nationwide chief economist Kathy Bostjancic wrote in a note to clients on Friday.
However, Bostjancic added that downward revisions to wage growth in previous months, as well as current employment gains in a small group of sectors, “underscore that the labor market is losing momentum quite quickly.” This, Bostjancic argues, could open the door for the Fed to cut interest rates by 50 basis points at one of its meetings this year.
The market agrees. According to Bloomberg data, traders are pricing in Fed rate cuts of more than 100 basis points this year. On Friday morning, markets were pricing in a 45% probability of a 50 basis point Fed rate cut by the end of its September meeting. A week earlier, the probability was 30%, according to the CME FedWatch tool.
Josh Schafer is a reporter at Yahoo Finance. Follow him on X @_joshschafer.
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