Nonfarm payroll grows 22,000 in August, sets stage for September rate cut

The August jobs report, published by the Bureau of Labor Statistics (BLS) this morning, showed a sharp slowdown in hiring, as nonfarm payrolls rose by just 22,000 compared to general expectations of around 75,000. The unemployment rate increased to 4.3%, little changed from a month ago, but the highest in over two years. The unemployment rate was impacted in part by a higher labor force participation rate, which climbed to 62.3% and the labor force overall increased by 436,000.

"Despite the weak headline, the labor market is still generating jobs, and 4.3% unemployment remains historically healthy. Equities are reacting positively, and bonds yields down as this softer print cements a Fed rate cut in September, with the door open for more easing through year-end," Lara Castleton, US Head of Portfolio Construction and Strategy at Janus Henderson Investors, wrote to InvestmentNews. 

Revisions to the past two months also revealed weaker job growth than previously reported. While July was revised upward to 79,000, the month of June tipped from positive to negative, revised to show a net loss of 13,000. Despite sluggish hiring, wages grew 0.3% in August and 3.7% from a year earlier, slightly under forecasts. Sector trends were mixed: health care and social assistance added jobs, but government, manufacturing, and wholesale trade cut workers.

"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 FOMC lays the groundwork for additional rate cuts later this year," Jeff Schulze, head of economic and market strategy at ClearBridge Investments, wrote to InvestmentNews.

The report was the first since President Donald Trump dismissed former BLS Commissioner Erika McEntarfer over dissatisfaction with weak prior reports. He has since nominated economist and ally E.J. Antoni, with William Wiatrowski currently serving as acting commissioner. Trump has repeatedly accused the BLS of political bias in its reporting, adding to controversy around the reliability of the data. Later today, the BLS will release the initial estimate for annual benchmark revisions dating back one year from March, 2025.

Markets view August report as reinforcing expectations that the Federal Reserve will cut interest rates by a quarter point at its September 17 meeting. While Fed officials still see overall economic expansion, they are concerned about slowing job creation, rising unemployment, and the risks of Trump’s tariff policies pushing up inflation. Household survey data offered a partial silver lining, showing higher labor force participation, though broader unemployment rose to 8.1%, its highest since 2021.

"Investors should tread carefully. There’s a clear difference between a temporary cooling in the jobs market and a deeper, more damaging downturn," Bret Kenwell, eToro investment analyst, wrote to InvestmentNews. "Hoping for the former while ignoring the risks of the latter — just to usher in lower rates — is a slippery slope. Stocks have held up well amid high rates and a resilient economy, but that resilience could quickly fade if the labor market shows real cracks."