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August’s US labor market report has indicated a major slowdown in hiring, with job growth falling and unemployment rising to a four-year high. The ongoing weakness has reinforced expectations for a rate cut from the FOMC on September 17th.
The Bureau of Labor Statistics (BLS) report highlighted a weaker economy, with job losses in several sectors and downward revisions to previous data, leading to concerns about stagnation in the US economy.
Weak NFP and Rising Unemployment Rate
Nonfarm payrolls grew by 22,000 in August, way below the forecast of 75,000 jobs. This marked a slowdown from July’s jobs gains of 79,000 jobs. The unemployment rate rose to 4.3% from 4.2%, reaching the highest level since October 2021. The labor market’s weakness was also evident from revisions to previous data. June saw a loss of 13,000 jobs, indicating the first decline since December 2020. ⁽¹⁾
Policy and Tariff Impacts
Economists have stated the labor market weakness was due to policies from US President Trump, especially his trade policies, immigration crackdown and mass firings.
The US tariff rate has reached its highest level since 1934, bringing more fears of higher inflation, and could lead the Fed to pause and rethink its strategy on rate cuts. A recent US appeals court ruling has also declared that the tariffs imposed by the US are illegal, leading to more uncertainty. ⁽²⁾
The manufacturing industry continued to show a decline in job losses, with 12,000 lost in August due to tariffs. Other sectors, including wholesale trade, financials, construction and others have also reported job losses. ⁽³⁾
Sector Performance and Wage Growth
Despite the slowdown in many sectors, healthcare jobs remain strong, adding 31,000 jobs in August. Social assistance added 16,000 jobs, but recent data showed declines in job openings in both healthcare and social assistance in July. Wages came out as a winner in the labor market report, with average hourly earnings rising to 0.3% MoM, with annual growth at 3.7%. ⁽⁴⁾
Political Turmoil Continues
The labor market data has been considered a source of controversy. President Trump recently fired BLS Commissioner Erika McEntarfer after a weakness in jobs growth in July. Trump also accused the former commissioner of manipulating data. ⁽⁵⁾
In McEntarfer’s place, the president nominated economist E.J. Antoni, a Trump loyalist from the Heritage Foundation who previously had criticized the BLS numbers as being politically distorted. William Wiatrowski is serving as acting BLS commissioner. ⁽⁶⁾
Market Reaction: USD Down, Gold Skyrockets to New High
Financial markets have reacted strongly to the report, with the US dollar index falling 0.58%, with heavy declines of 0.9% against the Yen and 0.94% against the Swiss franc. The losses against the Yen have been recovered due to developments in Japan, which weakened the Yen.
Gold has reached a new record high of $3,596 after rising 1.21% due to USD weakness and fears of economic slowdown and high expectations of a Fed rate cut. US indices rose earlier during the New York session on September 5th but closed lower.
The report comes as markets widely expect the Fed to lower its benchmark interest rate by a quarter percentage point when it releases its next decision on September 17th. Fed Chair Jerome Powell and his fellow policymakers have also been under heavy criticism from the president for keeping rates on hold, not cutting since December 2024. ⁽⁷⁾
