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The US economy added 130,000 jobs in August compared to 160,000 expected, while the unemployment rate remained flat as expected at 3.7%. The low rate of unemployment, near a 50-year low, along with strong labor market data released yesterday by the Labor Market and ADP, points to a strong and healthy market despite increasingly vulnerable economic conditions.

Key Takeaways

• The US economy added 130,000 jobs in August, 30,000 fewer than expected.
• The unemployment rate remained near the lowest level since 1969 at 3.7%, pointing to ongoing strength in the market.
• 25,000 of the jobs created were temporary positions created for the 2020 census.
• Average hourly earnings rose 0.4% for the month, or 3.2% for the 12 months through August.

Businesses are demonstrating more caution toward hiring, as evidenced by the mild slowdown. 25,000 of the jobs created in August were temporary positions created to accommodate for the 2020 census, making the headline figures slightly skewed.

While the labor market has demonstrated robust stability in recent times, there are increasing signs of an economic slowdown in the US. Manufacturing activity has been consistently weak, business investment has slowed, and a recent treasury bond yield inversion indicated a potential recession to many market analysts. The Federal Reserve went so far as to cut interest rates for the first time in a decade in July to hedge against recession, and may do the same again later this month.

Along with the miss this month in job growth, employment data was revised down in June and July as well, with June figures now reported at 178,000, revised down by 15,000, and July figures revised down 5,000 jobs to 159,000.

JOB GROWTH HAS SLOWED IN 2019. #JobsReport pic.twitter.com/Lv7cTeJAi7

— Heidi Shierholz (@hshierholz) September 6, 2019

One positive point from the report is wage growth, with average hourly earnings reportedly rising 04% on a monthly basis, or 3.2% annually. CIBC senior economist Katherine Judge stated that the recent deceleration was in line with an economy growing near it’s full non-inflationary potential, adding that the “report suggests that the US labor market, while slowing, remains tight, with higher wages and gains in hours worked supporting consumption ahead.”

Further Rate Cuts May Be Coming

The nature of the potential rate cut is also up for debate, with some analysts predicting a quarter-point cut and others expecting a half-point cut. Kathy Bostjancic, chief United States financial economist at Oxford Economics, believes the former is the most likely.

“When you look at the evidence of the impact from tariffs, slowing global growth and manufacturing in the U.S., it appears to be a lock,” Ms. Bostjancic said. “After September, we expect additional rate cuts in October and December as the downside risks are increasing.” Bostjancic also predicts a half-percentage point slowdown in economic activity next year due to the ongoing trade war.

Expert Outlook

The jobs report is all the more significant due to its sensitive timing. All eyes are on the labor market now as the lynch pin holding the rest of the economy together, and any turbulence here will be particularly influential.

Speaking about the jobs report, Carl R. Tannenbaum, chief economist for Northern Trust in Chicago, said “Many of us are on tenterhooks waiting for this set of numbers. Because of where we are in the business cycle, it’s taken on particular importance.”

Torsten Slok, chief economist at Deutsche Bank Securities furthered this point, stating that the indicators are now in place for a hiring slowdown that may have dire consequences, with business investment and manufacturing activity being chief among them.

“If companies are holding back on assembly lines, computers and buildings, then the next step is hiring,” he said. “The trend is not your friend.”

Market Reaction

Gold prices came off recent lows following the sub-par US jobs report. Spot gold last traded at $1,519.86/oz, up 0.29% with a high of $1,527.44/oz and a low of $1,503.22/oz. Renewed risk-on sentiment, likely influenced by today’s jobs report, has fought off selling pressure seen earlier in the session.