US economy added 142,000 jobs in August

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The US economy added 142,000 jobs in August and the unemployment rate ticked down to 4.2 per cent, keeping the Federal Reserve on track to lower interest rates this month.

The figures from the Bureau of Labor Statistics released on Friday came in below economists’ expectations for 165,000 new positions and surpassed the downwardly-revised 89,000 jobs created in July.

August’s jobs report is one of the most important economic releases ahead of the Federal Reserve’s next rate-setting meeting starting on September 17.

Last month, the BLS reported that employment in July rose by just 114,000, which lifted the unemployment rate to 4.3 per cent and sparked concerns that the world’s largest economy was heading for a recession. 

US stock futures remained under pressure and government bonds gained following the release of the payrolls data.

Contracts tracking the benchmark S&P 500 were down 0.3 per cent in the minutes after the data came out, while those tracking the technology-heavy Nasdaq 100 were 0.4 per cent lower — trimming earlier declines.

The policy-sensitive two-year Treasury yield fell by 0.08 percentage points to 3.67 per cent, while the 10-year yield fell 0.06 percentage points to 3.68 per cent. Yields fall as prices rise.

Futures pricing indicated that traders were still betting on at least one quarter-point interest rate cut in September following Friday’s labour market data.

Fed officials are scrutinising the labour market for signs of weakness as they try to push inflation back down to the central bank’s 2 per cent target, which is based on the annual change in the personal consumption expenditures index. “Core” PCE, which strips out volatile food and energy prices and is closely watched by policymakers, was 2.6 per cent in August, compared with a peak of more than 5 per cent in 2022.

That progress on inflation and signs of a cooling labour market have left the Fed poised to lower interest rates for the first time since the pandemic hit the economy in 2020. The central bank has held rates at a 23-year high of 5.25-5 per cent since last July.

Before Friday’s jobs report, most traders in futures markets thought the Fed would cut rates by a quarter-point this month, lowering them gradually this year and next to a “neutral” level that neither stimulates nor suppresses growth.

Fed chair Jay Powell said last month that the central bank did “not seek or welcome further cooling in labour market conditions” and would do “everything we can to support a strong labour market as we make further progress towards price stability”. 

His comments came amid signs that the labour market is no longer the source of inflation that it was during a period of worker shortages that pushed up wages. Companies are now cutting job vacancies rather than laying off workers, with the number of openings now at its lowest since 2021, according to data released this week.