August US jobs report: Mixed signals keep feed on track for measured rate cut

The US labor market showed signs of cooling in August, with job growth slowing but remaining positive, potentially paving the way for a measured approach to interest rate cuts by the Federal Reserve later this month.

The Bureau of Labor Statistics reported today that total nonfarm payroll employment increased by 142,000 in August, below average monthly earnings of 202,000 over the past 12 months. Meanwhile, the unemployment rate changed to 4.2% from 4.3% previously.

Key points from the August Labor Force Summary:

• Total nonfarm payroll employment rose by 142,000, below market expectations
• June job gains revised down from 179K to 118K
• July job gains revised down from 114K to 89K
• The unemployment rate remained relatively stable at 4.2%
• The construction and health sectors saw job gains
• Manufacturing employment fell by 24,000
• Average hourly earnings rose 0.4% month-over-month and 3.8% year-over-year

Link to August Employment Summary

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

Market reactions

US Dollar vs. Major Currencies: 5 min

USD chart overlay against major currencies by TradingView

The US dollar showed mixed reactions against major currencies after the release of the jobs report. Initially, there was a sharp move in most pairs, likely a sharp reaction to the slower rate of job growth and downward revisions to the June and July net change numbers.

But the market quickly went back into Bull mode, likely a shift in sentiment due to traders digesting the information and realizing that while we saw weakness relative to expectations, these numbers are still relatively healthy and likely to reduce the arguments for an aggressive rate cut. , as reported by the CME FedWatch tool.

At the time of writing, the odds of a 25 bps Fed rate cut in September rose to 75% from 60% yesterday, while the odds of a 50bps cut fell from 40.0% to 25.0%