The US job market showed signs of slowing in August, giving financial markets renewed hope that the Federal Reserve will secure a soft landing for the world’s largest economy.
Investors welcomed a potentially benign scenario in which inflation is tamed without triggering a recession, as Friday’s data showed a modest rise in the unemployment rate, weak job growth, and wages rising to previous levels.
“If the Federal Reserve could have perfected their jobs report, it would be like they are doing today,” said Andrew Hollenhorst, an economist at Citibank, who called the mix “ideal” for the central bank’s purposes.
But he added, “We have to be careful when we look at a month’s worth of data and say we’re safe.”
The vast majority of investors already expected the central bank to keep interest rates steady at its next meeting in late September.
But after the data was released on Friday, futures markets reduced the likelihood of a rate hike to almost 40% from just under 50% at the next meeting in November.
Investors and policymakers are keeping a close eye on any signs that the US jobs market is slowing, as employment and wage growth are major drivers of inflation.
Data from the Bureau of Labor Statistics showed that unemployment rose to 3.8 percent last month, compared with economists’ expectations that it would remain steady at a decade-low of 3.5 percent.
Monthly wage growth of 0.2 percent was also lower than expected, although the annual growth rate of 4.3 percent remained well above levels consistent with the Federal Reserve’s 2 percent inflation target.
The economy added 187,000 new nonfarm payrolls in August, ahead of expectations of 170,000 but below the 200,000 mark for the third straight month.
The total for the past two months has also been revised to a cumulative decline of 110,000.
Developments in wages and unemployment have helped more people re-enter the labor market, with the labor force participation rate rising for the first time since February. Such an increase in labor supply can also slow wage growth.
Jack Janasiewicz, a portfolio manager at Natixis, said that this “will put downward pressure on wages overall” as people continue to “move from marginal markets into the labor market”.
Friday’s numbers followed separate data released this week, which also pointed to a slowdown in labor demand, with job vacancies falling more than expected.
“The report shows that the labor market is changing positively: what we want to see is an increase in labor force participation,” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income.
“A September rate hike is now highly unlikely, but it’s too early to say that all rate hikes are off the table.”
However, other economists have expressed concern that the Federal Reserve is putting too much pressure on the economy.
“The likelihood of a hard landing will continue to increase as long as the Federal Reserve keeps talking about rate hikes,” said Priya Misra, portfolio manager at JP Morgan Asset Management.
“Just keeping options means that real interest rates remain capped,” he added, citing the impact of expectations on the actual cost of borrowing.
In his annual address at the Federal Reserve Economic Symposium in Jackson Hole, Wyoming last week, Federal Reserve Chairman Jay Powell emphasized that the central bank “stands ready to continue raising interest rates if the need arises,” but said that policy makers would do so. Be careful when trying to strike the balance. in controlling inflation. At the same time, the damage to the economy as a whole is minimized.
Stock and bond prices rose after the data was released. U.S. stocks opened higher, with the S&P 500 Index up 0.3 percent in morning trade.
Yields on the interest-sensitive two-year Treasury note initially fell, but then rebounded to trade 0.01 percentage point higher at 4.86 percent. Yields fall when prices rise.
The yield on the 10-year government bond fell to 4.06 percent, the lowest since Aug. 10, but rebounded to trade 0.09 percentage point higher at 4.18 percent.