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August’s gain of just 142,000 total nonfarm payroll jobs confirms that the job market is cooling, which all in all is good news for the Federal Reserve, which meets in a little under two weeks to discuss interest rates. But is it enough to justify a half-point cut?
Data from the U.S. Bureau of Labor Statistics released on Friday also showed that the June jobs report was revised downward to 118,000 jobs (from 179,000) and July down to 89,000 jobs (from 114,000).
The unemployment rate remained fairly steady month-over-month coming in at 4.2% with 7.1 million people unemployed. A year ago, the jobless rate was 3.8% with 6.3 million people unemployed.
Mike Fratantoni, the senior vice president and chief economist at the Mortgage Bankers Association, said the job gains in August did little to lower the unemployment rate and he expects the jobless rate to get as high as 5% in the next year.
“There were job losses in the manufacturing sector (-24,000 jobs) in August but relatively modest job gains in the services sector. This is consistent with a cooling of demand or workers from companies across the board,” Fratantoni said in a statement. “The JOLTS report this week added to this picture with data showing an ongoing decline in job openings.”
The majority of the job gains occurred in construction (+34,000 jobs), health care (+31,000 jobs), social assistance (+13,000 jobs).
When broken out, residential building construction gained 4,800 jobs in August and residential specialty trade contractors gained 800 jobs. The largest gains were in the heavy and civil engineering sectors (+13,500 jobs) and the nonresidential specialty trade contractor sector (+14,000 jobs).
The real estate sectors gained 3,500 jobs in August, while the rental and leasing services sector gained 2,600 jobs.
Economists believe this report will give the Fed the confidence it needs to cut rates at their meeting later this month.
“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.”
Kathy Bostjancic, chief economist at Nationwide, agrees with Fratantoni, noting that the numbers were “not likely enough” for the Fed to consider a half-point reduction.
As of Friday morning, the market was pricing in a 50-50 likelihood of a 50-basis point cut.
