U.S. August Jobs Report: Mixed Signals Keep Fed on Track for Measured Rate Cut

The U.S. labor market showed signs of slowing in August, with job growth slowing but remaining positive, paving the way for the Federal Reserve to take a measured approach to cutting interest rates later this month.

The Bureau of Labor Statistics reported today that total nonfarm payrolls rose by 142,000 jobs in August, The U.S. unemployment rate fell to 4.2% from 4.3% the previous month, below the average monthly gain of 202,000 jobs over the previous 12 months.

Key points from the August employment status summary:

• Total nonfarm employment rose by 142,000 jobs, less than market expectations.
• June job gains were revised to 118,000 jobs from 179,000.
• July job gains were revised from 114,000 to 89,000.
• The unemployment rate remained relatively stable at 4.2%.
• Construction and health care sectors saw job gains.
• Manufacturing employment fell by 24,000 jobs.
• Average hourly earnings rose 0.4% month-over-month and 3.8% year-over-year.

Link to August Employment Status Summary

Overall, this report was mixed and perhaps a bit cooler, but overall it was in line with what the markets were expecting (as shown in Babypips.com’s NFP Event Guide).

Market Reactions

US Dollar vs Major Currencies: 5 minutes

The US dollar showed mixed reactions against major currencies following the release of the jobs report. Initially, there was a sharp move across most pairs, perhaps an emotional reaction to the slowdown in job growth and the downward revision to the net change figures for June and July.

But the market quickly reversed back to a bullish dollar, likely a shift in sentiment as traders digested the information and realized that while we saw relative weakness compared to expectations, these numbers are still relatively healthy and likely to lower the case for a sharp rate cut, as the CME FedWatch tool indicated.

As of this writing, The odds of a 25 basis point Fed rate cut in September rose from 60% yesterday to 75%, while the odds of a 50 basis point rate cut fell from 40% to 25%.