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A weakening job market in the U.S. indicates that the Federal Reserve’s task may be over

Autor: Financial Market
2 min

In August, U.S. non-farm employment figures rose by 187,000, surpassing the expected 170,000. However, the downward adjustment of 110,000 jobs over the previous two months suggests a continuing deceleration in job growth.

Private-sector employment accounted for 179,000 of the new jobs, with the private education and health sectors contributing 102,000 positions.

Leisure and hospitality also demonstrated robust job creation, adding 40,000 positions. Weakness was evident in the information, trade and transportation, and temporary help sectors, which lost 15,000, 20,000, and 19,000 jobs, respectively.

A separate household survey, which informs unemployment rate calculations, showed a more substantial job increase of 222,000.

However, the count of self-identified unemployed individuals spiked by 514,000, likely due to more people re-entering the workforce.

The labor force participation rate rose to 62.8% from 62.1% a year earlier, a development the Federal Reserve is eager to see as it may help control wage inflation.

Speaking of wages, month-over-month growth in average hourly earnings remained modest at 0.2%, the lowest since February 2022.

The unemployment rate increased to 3.8% from 3.5%, against a forecast of 3.5%. Given these conditions, it seems unlikely that the Federal Reserve will raise interest rates in either September or November, especially with the core Consumer Price Index expected to decelerate soon.

As for the Fed’s future actions, there is a link between unemployment rates and lending conditions. With factors like rising borrowing costs, limited credit availability, and upcoming student loan repayments poised to dampen economic activity, the unemployment rate is expected to climb.

This increase is projected to occur not just because of higher workforce participation but also due to actual job losses. But, the peak in U.S. interest rates seems to has been reached and it is anticipated that a rate cut would occur in March 2024.

Photo by Sam Trotman on Unsplash