Dismal August Jobs Report Offers Rate-Cut Relief

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The August jobs report came in weaker than expected, signaling a massive slowdown in the labor market. This is good news for those who want the Federal Reserve to lower interest rates, with a September rate cut all but guaranteed and two more expected by year's end.

According to the Bureau of Labor Statistics (BLS), nonfarm payrolls rose by 22,000 in August, missing economists' estimate for 75,000 new jobs. Figures for June were revised down by 27,000, from adding 14,000 to losing 13,000, while July job growth was upwardly revised by 6,000 (from 73,000 to 79,000 additions).

With these revisions, the U.S. added 21,000 fewer jobs in June and July than previously reported.

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As for August, job gains were seen in health care (adding 31,000) and social assistance (adding 16,000). However, federal government jobs declined by 15,000, and are now down by 97,000 since January.

The unemployment rate, which is calculated from a separate survey, ticked up to 4.3% from 4.2%. The data also showed that wage growth was 0.3% higher month over month in August and 3.7% year over year.

"The labor market continues to show fatigue as businesses hold back on hiring amid uncertainty around the direction of inflation, tariffs and the strength of the underlying economy," says Joe Gaffoglio, president and CEO at Mutual of America Capital Management.

Gaffoglio adds that data released earlier this week showed that more folks are unemployed than there are available jobs, which hasn't happened since April 2021.

"Not surprisingly, consumer confidence dipped in August, and discretionary spending was mixed. Overall, the economy is showing indications of softening, even as equity markets near all-time highs."

Against this backdrop, it's all but certain the federal funds rate will be lowered at the next Fed meeting later this month.

According to CME Group's FedWatch, futures traders are pricing in an 88% chance the Fed will cut rates by a quarter-percentage point when it concludes its next meeting on Wednesday, September 18.

The odds of a jumbo-sized half-percentage-point cut are also on the rise, last seen at 12% after not even being considered an option a day ago.

Futures traders are also pricing in strong odds of a rate cut at the Fed meetings in October and December.

With the August jobs report now in the books, here's some of what economists, strategists and other experts around Wall Street have to say about the results and what they could mean for investors going forward.

Experts' takes on the August jobs report

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"Today's softer-than-expected jobs report underlines the growing downside risks to the labor market. Hiring is running close to stall speed, and the breadth of jobs gains remains poor. While slow supply growth is mitigating upward pressure on the unemployment rate, the Fed is acutely aware that a low-demand, low-supply equilibrium is fragile and vulnerable to deterioration. A rate cut at this month's meeting was already to be expected, and today's data suggests the risk that the Fed may embark on a faster pace of easing than the cautious approach outlined by Powell at Jackson Hole." — Simon Dangoor, Head of Fixed Income Macro Strategies at Goldman Sachs Asset Management

"While the revisions to the prior months were not as significant as the ones seen in the jobs report from one month ago, the June jobs data was revised lower to a negative number, which is further evidence of a labor market that has slowed considerably. The labor market has been weakening, and while that greenlights a September rate cut, the Fed would be cutting interest rates in an environment with elevated inflation, which is unusual. The Fed's preferred inflation gauge as of late has been moving farther from the central bank's 2% target, not closer to it." – Rich Mullen, Founding Partner and CEO at Pallas Capital Advisors

"The August payrolls release did little to quell fears of a recessionary-esque labor backdrop with job creation remaining at stall speed. Nothing in today's report changes the outlook for a September rate cut, with concerns over the labor market trumping the desire to wait for more clarity on tariff-induced inflation. This report is supportive of additional and faster rate cuts beyond September, which, combined with next week's QCEW revisions, could influence the degree to which the Federal Open Market Committee lays the groundwork for additional rate cuts later this year." — Jeff Schulze, Head of Economic and Market Strategy at ClearBridge Investments

"This report syncs with our view that the labor market is likely to gradually decelerate in the coming months/quarters and [we] continue to look for the unemployment rate to move higher by the end of this year. Our projection has called for a 4.5% unemployment rate by year-end 2025 as the economy slows. [Investors should] trim funds from U.S. small caps, [the] communications services sector and emerging markets. Use those funds to buy sectors that we favor but have lagged in recent months: Utilities (favorable) & Financials (most favorable)." — Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute

"This week has been a story of a slowing labor market, and today's data was the exclamation point. The initial reaction suggests markets are focused on Fed rate cuts rather than concerns about a cooling economy. Bad news looks like good news, at least this morning." — Ellen Zentner, Chief Economic Strategist for Morgan Stanley Wealth Management

"The paltry number of jobs added last month deserves some context. The breakeven rate – where the number of jobs added each month supports a healthy labor market — moves based on how the labor force grows (or doesn't). And labor force growth depends pretty significantly on immigration. If the labor supply is constrained by immigration policies, for instance, the number of jobs added can slow significantly without an uptick in unemployment. This obviously doesn't mean today’s jobs report is good; June's figures were revised to a negative. But as policies that affect the economy change, so does the data — both the headline figures and their interpretations." — Elizabeth Renter, Senior Economist at NerdWallet

"Job growth is clearly signaling a slowdown in the economy. Even factoring in concerns about data accuracy, the latest BLS figures are now aligning with what other surveys and data providers have been indicating for months. As a result, despite lingering uncertainty around inflation, the weakness in the labor market is too significant for the Fed to ignore." — Kevin O'Neil, Associate Portfolio Manager & Senior Research Analyst at Brandywine Global

"Today's nonfarm payroll report reinforces the view of a labor market losing momentum. Though not yet at recessionary levels, the overall tone of the report was soft. The data likely cements a 25 basis-point Fed cut later this month. Despite inflation remaining above target, the Fed appears more concerned with helping the labor market than forcing inflation down, and importantly, it does not view wage growth as a risk that would derail easing. A 50 basis-point cut in September remains unlikely, but markets are leaning toward the possibility of back-to-back 25 basis point cuts in September and October." — Mike Sanders, Head of Fixed Income at Madison Investments

"Following last month's large negative net revisions and resulting personnel shake-up at the BLS, there is some trepidation toward the accuracy of the nonfarm payroll data. A press release earlier this morning that the BLS was experiencing technical difficulties, potentially resulting in delays didn't help matters. Alas, the monthly BLS labor market report was released on time. While market participants are beginning to weigh other labor market data produced by private sources more heavily, such as ADP and the ISM surveys, market reaction to today's weak nonfarm payroll print shows that investors still regard it as tier one data, for now." — Jeffrey Hibbeler, Director of Portfolio Management at Exencial Wealth Advisors

"Another weak jobs report shows last month's downward revisions were real. Job growth has slowed to just slightly positive. A 25 basis-point (bp) September rate cut looks locked in with guidance towards another couple more rate cuts this year. The print was probably not weak enough for a 50-bp cut in September (we think we needed a negative print, unemployment above 4.4%, and then very soft inflation print next week)." — John Luke Tyner, Head of Fixed Income and Portfolio Manager at Aptus Capital Advisors

With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.