US Labor Market Cools Further; September Rate Cut Almost Certain

The US Bureau of Labor Statistics (BLS) reported on Friday that nonfarm payrolls increased by 22,000 in August, significantly missing market expectations of 80,000. The unemployment rate rose by 0.1 percentage point from the previous month to 4.3%, the highest level since November 2021. Analysts believe that further cooling in the labor market has almost sealed a Federal Reserve rate cut in September.

Around 10:00 Beijing time on Saturday, data from the CME FedWatch Tool showed an 89% probability of a 25-basis-point rate cut by the Fed in September and an 11% chance of a 50-basis-point cut. Due to expectations of more aggressive easing policies, the yield on the 10-year US Treasury note fell sharply by 9.2 basis points to 4.084%.

Olu Sonola, Head of US Economic Research at Fitch Ratings, told Jiemian News that the weaker-than-expected jobs report almost locks in a 25-basis-point rate cut later this month.

"The alarm bells that were ringing in the labor market a month ago are now even louder. In the short term, even if inflation moves further away from the 2% target, the Fed may still prioritize ensuring labor market stability over inflation targets," Sonola said.

Bradley Saunders, North America Economist at Capital Economics, also told Jiemian News that the August nonfarm payroll data suggests a Fed rate cut at this month's meeting seems almost certain. He also noted that due to the ongoing impact of tariffs, manufacturing employment has declined by a cumulative 78,000 since the beginning of the year, dashing hopes that Trump's tariffs would bring manufacturing back.

According to revised figures released by the BLS, the steep decline in the labor market began in May, with nonfarm payrolls increasing by only 19,000 that month. In June, employment fell by 13,000, marking the first monthly negative value since 2020. July saw an increase of 79,000, but the data is subject to further revision. Additionally, BLS data showed that for the week ending August 30, initial jobless claims increased by 8,000 from the previous week to 237,000, hitting an 11-week high.