U.S. Outlook: Another worrying sign—the job market
There was a clear slowdown in U.S. job growth in August, raising the possibility of two more Federal Reserve rate cuts this year.
Last month, the U.S. economy created 130k net nonfarm jobs, lower than the downwardly revised 159k net new jobs in July, according to a government report.
August’s job gains were actually lower than our below-consensus estimate of 149k jobs.
Peering Under the Hood of the Job Market
The health of the U.S. labor market is even weaker than the August headline job gain would suggest.
The government has revised lower job creation data over the past two months by around 20k jobs and reported that once-in-a-decade Census hiring was behind 25k jobs created last month. In other words, Census hiring will provide only a temporary boost to nonfarm jobs.
Therefore, the adjusted net gain in nonfarm jobs in August is more like 85k jobs. Moreover, private-sector job growth fell below 100k to 96k in August. That is the weakest performance of private-sector job creation since May. It’s also a sharp deterioration from July’s 131k job gain and January’s 297k monthly increase.
More Rate Cuts in Store
Most concerning for the Fed is the sharp slowdown in service sector employment gains to just 84k jobs last month from 133k jobs in July. The August jobs report is weak enough to prompt another 25 basis point rate cut from the Fed at the upcoming September 18 FOMC meeting. It also raises the chances of a 25 basis point cut in October.
On a brighter note, average hourly earnings growth, on a three-month average annualized basis, accelerated to 3.6% from 3.0% in July. This boost should keep consumers spending at a decent pace over the near-term despite the headwinds from the global economy, trade tariffs, and slowing job creation. U.S. recession risks remain elevated, but we are clearly not there yet.
The Tariffs Are Coming!
In short, August’s weaker-than-expected jobs report suggests the need for more Fed stimulus this year. Just the threat of additional tariffs in August helped take some of the air out of the U.S. expansion and job growth. If the additional tariffs on Chinese imports go into effect, we can expect far more obstacles to continued growth in the quarters ahead. Economists have known for centuries that trade wars have real negative economic impacts. Those times appear to be upon us yet again.
For more, see my full U.S. Outlook, delivered on September 6.