Key takeaways
The economy created 142,000 new jobs in August, a slight improvement over June and July’s tepid job growth numbers.
However, the overall labor market picture is one of slower growth.
The latest government jobs report reinforces expectations of pending Federal Reserve interest rate cuts.
Capital markets and central bank policymakers increasingly view the U.S. labor market as a key economic indicator. The August 2024 jobs report showed further signs of a softening jobs market. This provided further evidence that the current economic expansion may be tapering off. It is the last jobs report before the upcoming meeting of the Federal Open Market Committee (FOMC) scheduled for September 17-18. The jobs data seems to affirm expectations for FOMC interest rate cuts this month.
The U.S. Bureau of Labor Statistics (BLS) reported that the economy created 142,000 new jobs in August. While this represents an improvement from June (118,000) and July (89,000), it shows continuing slow job growth. The August jobs report included downward revisions in June and July jobs data.1 In late August 2024, the BLS issued annual benchmark payroll jobs revisions for the 12-month period ending in March 2024. Payroll jobs were reduced by 818,000 from previous reports, representing a 0.5% downward revision in jobs over the 12-month period ending in March.2
“Markets generally have little concern with revisions of past job growth numbers,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “That data is not market-moving because it is so far in the rearview mirror. Markets are more concerned with the direction the economy is headed.”
August’s payroll growth was led by a boost in construction and healthcare jobs. Manufacturing jobs declined in August, though the number of American manufacturing jobs is little changed over the past 12 months.1
While job growth continued slowing, the August unemployment rate stood at 4.2%, a modest downturn from July’s 4.3% reading.1 “The market’s worry with the unemployment rate is that historically, once it begins rising, it tends to keep rising,” says Haworth. “Still, when taking a more historical view of the unemployment rate, a number in the low 4% range is still quite favorable.”
The unemployment rate held below 4% from February of 2022 through April 2024, but then crossed the 4% threshold in May.2
The number of open positions compared to available workers, which previously was significantly imbalanced with far more jobs than workers, recently leveled off. At the end of July, according to the U.S. Bureau of Labor Statistics, there were 7.7 million job openings in the U.S., compared to 7.1 million unemployed persons. The so-called “Worker Demand Gap,” or number of job openings minus the number of unemployed workers, is at its lowest level in more than three years.3
One measure economists watch to forecast potential changes in labor market trends is the weekly new jobless claims report. In the most recent report, initial jobless claims stood at 227,000 for the week ending August 31.4 This is down from a 2024 high of 249,000 jobless claims at the end of July. “If you look at long-term history, sub-300,000 initial weekly jobless claims is considered a fairly healthy level for the economy,” says Haworth. “Investors now closely watch this weekly data point to try to get an early read on labor market trends.”
Markets also track the labor force participation rate, considered a key barometer of the broader economy’s health. This number hasn’t changed much over the past year, and in August stood at 62.7%.1 “Improving labor participation is one way to address tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, a senior economist at U.S. Bank.
“Improving labor participation is one way to address the tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, senior economist at U.S. Bank.
The Federal Reserve (Fed), in 2022 and 2023, raised the interest rate banks charge each for overnight lending from near 0% to a peak of 5.50%. This had the effect of increasing interest rates for such things as mortgages and credit cards, as well as boosting bond yields in the fixed income market. The Fed’s move was designed to slow the economy and curb inflation. The economy has avoided a recession, though analysts anticipate slower growth going forward. The nation’s Gross Domestic Product (GDP) grew at an annualized rate of 3% in 2024’s second quarter, more than double first quarter annualized GDP growth.5 Inflation, which was stuck at a 3%+ annual level for more than a year (based on the Consumer Price Index) trended lower in recent months, down to 2.9% for the 12 months ending in July.2
Haworth notes that the Fed is closely monitoring average monthly wage growth. That number bumped up slightly in August to 3.8% for the preceding 12 months, compared to 3.6% for the 12 months ending in July. Still, wage growth is down considerably from levels reached in recent years.1 “This measure may give the Fed more confidence that inflation is moving in the right direction,” says Haworth.
In August, Fed Chair Jerome Powell, said “the labor market has cooled considerably from its formerly overheated state.” This fact, combined lower inflation, led Powell to suggest, “The time has come for (interest rate) policy to adjust,” which markets took as a confirmation that in September the FOMC will lower rates for the first time since 2020.6 The August jobs report does not seem to present any data that would sidetrack Fed plans to initiate rate cuts.
Investors continue to closely track jobs data as key economic indicators and how they may signal potential Fed interest rate cuts. Fed rate cuts are considered a way to provide a boost to the economy and help support the stock market rally that began in 2023, and also help the bond market.
Talk with a wealth professional if you have questions about your personal financial circumstances or investment portfolio.
The job market refers to the marketplace where individuals seek work and employers seek workers. The strength of the job market is considered one important measure of the current health of the broader economy. If more jobs are being created and demand for labor is high, it tends to reaffirm the presence of an expanding economy. By contrast, higher unemployment levels and low job growth (or a decline in job growth) indicate a slowing economy.
The unemployment rate, reported monthly by the U.S. Bureau of Labor Statistics, provides significant insight into the health of the nation’s economy. Generally, the lower the unemployment rate, the stronger the economy is likely to be. The unemployment rate is also one of the mostly closely followed indicators. It’s important to note that the unemployment rate reflects people who are out of work but still seeking employment. It does not reflect others who have stopped looking for work or consider themselves no longer in the labor force.
When the unemployment rate moves higher, it indicates potential weakening of the economy. Consumers may consider holding back on purchases if they have concerns that they, themselves, could face unemployment in the near future. If that occurs, it can potentially contribute to further economic weakness. When unemployment is low, it’s a good indicator that the economy is strong and expanding.
The Federal Reserve is set to ease monetary policy aimed at slowing consumer demand by cutting interest rates this month. Does this mean the threat of recession has receded?
With inflation retreating and more interest rate cuts likely coming, how should investors position their portfolios to capitalize on potential opportunities, while guarding against risks?
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