U.S. added 187,000 jobs last month; unemployment rose to 3.8%

Sept. 1:

August’s employment report shows more new jobs were added than expected: 187,000, including 16,000 new manufacturing jobs. However, the unemployment rate rose to 3.8% from 3.5% in July, and the underemployment rate grew to 7.1% from 6.7%.

Part of the increase in unemployment and underemployment may be attributed to a higher labor force participation rate, which was 62.8% in August, up from 62.6% in July. Still, the labor market appears to show signs of softening.

Another key data point: Hourly earnings grew only 0.2% in August, down from 0.4% the prior month. Year-over-year growth in hourly earnings slowed slightly from 4.4% to 4.3%. Wages are regarded as a leading indicator of the overall inflation rate.

The average workweek ticked up just a bit from 34.3 hours in July to 34.4 hours in August.

Slowing labor market may make rate hike less likely

At first blush, the apparent softening in the labor market implies a reduced chance the Federal Reserve will raise interest rates further. As of this morning, Fed funds futures priced in only a 36% chance of a Fed tightening at that Nov. 1 Federal Open Market Committee meeting. The probability exceeded 50% only a few days ago.

Fed funds futures also imply the upper end of the Fed funds target range may be 4.25% by the end of 2024, down from the 4.50% that had been priced in previously.

State of the market

This morning, the Dow traded up and Treasury yields were down relative to Thursday morning.

Given the upcoming holiday weekend, it may take a few days into next week for the market to fully digest today’s employment news. Next week’s calendar is decidedly quiet, outside of the ISM Services PMI on Wednesday, but that does not necessarily indicate that markets will be calm. In the absence of hard data, the market looks for whatever information it can seize upon, wherever it can find it.