U.S. Unemployment Report Reveals Surprise Jump as Payrolls Beat Estimates
Key takeaways
- The unemployment rate unexpectedly hit 3.8% for August, the highest since February 2022
- Nonfarm payrolls also surprised on the upside to hit 187,000 for the month
- Wall Street and analysts are now increasingly convinced that monetary tightening from the Fed is finished after the result
In more “the jobs market is crazy and we can’t keep up” news, both unemployment and nonfarm payrolls increased in August as high interest rates continue to work their way through the U.S. economy in a bid to tame inflation. For the Fed, it’s a mixed bag of results as the next policy meeting looms. Here’s the lowdown.
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What did the unemployment report say?
The unemployment rate breached a new high not seen since February 2022, arriving at 3.8% for the month of August. That’s in line with the JOLTS report from earlier in August confirming that job openings have dropped to their lowest levels since 2021, in line with the view that the labor market is finally cooling off.
Nonfarm payrolls also increased by 187,000 monthly, well above the Dow Jones consensus estimate of 170,000. However, previous months’ results were downgraded much lower: July was revised down 30,000 to 157,000 and June by 80,000 to 105,000, which is the smallest monthly gain since 2020.
The good news was that average hourly earnings came in below expectations at 0.2% for the month and 4.3% on a yearly basis versus the 0.3% and 4.4% predicted. Wage inflation can help keep inflation hot, so it’s a good outcome for the Fed and interest rates to stay level.
What does this mean for inflation?
Overall, it was a positive report, considering August is one of the most volatile months of the year for jobs reports, which lends further credence to the idea that the Fed will keep interest rates in place.
The CME FedWatch tool, which tracks sentiment on how investors feel the Fed might take the policy direction, is now at 93% for holding rates steady in September. Interest rates are at their highest levels in 22 years after the Fed voted to increase them to a target range of 5.25% to 5.5%.
The unemployment report has also given hope to investors that the monetary tightening cycle will end soon. Predictions for November and December’s meetings jumped to over 60% certainty that the Fed will hold interest rates steady for the rest of the year.
The bottom line
The labor market has been tricky for the Fed to balance — too restrictive, and there’s mass unemployment; not restrictive enough, and inflation starts to win again. But the markets are looking increasingly convinced that there’s a light at the end of the tunnel — perhaps that fabled soft landing is possible, after all.
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