Weak US Jobs Data Strengthens Case for Fed Rate Cuts

Markets rallied Friday after the latest US jobs report revealed a sharp slowdown in hiring, reinforcing expectations that the Federal Reserve will cut interest rates this month.

A Marked Slowdown in Labor Market Momentum

The Labor Department reported that nonfarm payrolls rose by just 22,000 in August, far below the Wall Street Journal survey forecast of 75,000. The unemployment rate edged higher to 4.3%, continuing a gradual upward trend.

Revisions to prior months painted an even grimmer picture. June’s job growth was revised from a gain of 14,000 to a net loss of 13,000—the first monthly decline since December 2020—while July’s figures were revised slightly upward to 79,000. The combination of weak headline numbers and negative revisions signals that labor market softness is deepening.

Sector Trends Highlight Uneven Growth

Healthcare and social assistance provided the bulk of August’s gains, adding nearly 47,000 jobs, while federal employment fell by 15,000, signaling a potential shift in government spending priorities. Retail, manufacturing, and construction employment remained largely flat, reflecting broader uncertainty among businesses navigating high tariffs, elevated borrowing costs, and slowing consumer demand.

Corporate reports further highlight the uneven picture. Companies like Chipotle Mexican Grill (NYSE:CMG), Kroger (NYSE:KR), and Procter & Gamble (NYSE:PG) have pointed to strained household budgets, while Walmart (NYSE:WMT) and Ace Hardware have warned of price hikes tied to Trump administration tariffs. Consumer sentiment dropped nearly 6% in August, reversing gains from early summer, according to the University of Michigan.

Political Overhang: Trump’s Move on BLS Leadership

This is the first jobs report following President Trump’s firing of Bureau of Labor Statistics Commissioner Erika McEntarfer, a move that stirred controversy over political interference in economic data. Trump has nominated economist Erwin John “E.J.” Antoni as her replacement, pending Senate confirmation. Markets appear to be brushing aside political drama, but investors are increasingly wary of Fed independence as Trump seeks greater influence over monetary policy.

Market Reactions: Stocks, Bonds, and Dollar

Stock futures rose after the data, with traders betting that a sharp slowdown in job creation will push the Fed toward its first rate cut of the cycle at its upcoming meeting. Treasury yields dropped across the curve, reflecting a flight to safety and anticipation of looser monetary policy. The dollar softened against a basket of currencies, extending its recent pullback.

Fed Implications: A Pivot in Policy Looms

Fed Chair Jerome Powell has already signaled that labor market dynamics are key to future decisions. Friday’s report reinforces a narrative that economic growth is slowing faster than expected. Immigration restrictions have reduced labor supply, and companies are optimizing operations rather than adding headcount. Rate futures now price in a strong probability of a September cut, with some traders anticipating a more aggressive easing path into year-end.

Global Market Context

A softening U.S. labor market could ripple through global equities and currencies. Emerging markets may see relief if U.S. yields fall further, but commodity markets face mixed signals. Tariffs are lifting costs for manufacturers, potentially pressuring margins and adding inflation risks even as demand weakens. Oil prices remain volatile ahead of OPEC+ decisions, while gold’s breakout above $3,600 underscores investor nervousness.