The U.S. economy added fewer-than-expected new jobs last month, data indicated Friday, with big downward revisions to recent summer tallies, suggesting a cooling labor market that is likely to cement the case for a larger Federal Reserve rate.
The Bureau of Labor Statistics reported that a net 142,000 new jobs were created in August, a tally well above the downwardly revised July total of 89,000 but also well south of this year's monthly average of around 200,000.
Revisions to both the July and June totals removed around 86,000 jobs from the original estimates published by the BLS.
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Last month, the BLS also trimmed around 818,000 jobs from its estimate of gains over the twelve months ending in March, with overall employment for the period pegged at around 2.1 million.
Average hourly earnings in August rose 0.4% from July levels and were up 3.8% on an annual basis, with both tallies coming in surprisingly ahead of Wall Street forecasts.
The headline unemployment rate edged higher to 4.2%, while the labor force participation rate was unchanged at 62.7%.
Economists were looking for a headline total of around 164,000 new hires in the August report with a headline unemployment rate of 4.2%.
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"We do not seek or welcome further cooling in labor market conditions," Federal Reserve Chairman Jerome Powell said during his address to the Jackson Hole symposium last month.
"Overall, the economy continues to grow at a solid pace. But the inflation and labor market data show an evolving situation," he added. "The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last statement, we are attentive to the risks to both sides of our dual mandate."
U.S. stocks pared declines following the data release, with the S&P 500 marked 56 points, or 1.03% lower in early trading and the Dow fell 215 points.
The tech-focused Nasdaq, meanwhile, was last seen 282 points, or 1.65% to the downside.
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Benchmark 10-year Treasury note yields fell 2 basis points to 3.6893% following the data release, the lowest since December of last year, while rate-sensitive 2-year notes fell 5 basis points to 3.661%.
The CME Group's FedWatch, meanwhile, pegs the odds of a 50 basis point reduction in September at around 53%, up from 41% prior to the data release, with two more quarter-point cuts priced in over the final two meetings of the year.
"Rarely has there been such a make or break number – unfortunately, today’s jobs report doesn’t entirely resolve the recession debate," said Seema Shah, chief global strategist at Principal Asset Management. "Significant negative revisions to July’s already weak number, coupled with a softer-than-expected August number, offset the good news from the fall in the unemployment rate and rise in hours worked."
"For the Fed, the decision comes down to deciding which is the bigger risk: reigniting inflation pressures if they cut by 50 basis points or threatening recession if they only cut by 25 basis points," she added. "On balance, with inflation pressures subdued, there is no reason for the Fed not to err on the side of caution and frontload rate cuts."
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Data on Thursday showed weekly jobless claims slipped by around 5,000 over the week ended Aug. 21, the Labor Department said, with around 227,000 Americans filing their first paperwork for unemployment benefits.
The running total of continued claims, meanwhile, which lag the headline measure by a week, fell to 1.838 million from the highest level since 2021 during last month's measuring period.
Payroll processing group ADP's National Employment report, meanwhile, showed private sector job creation slowed to 99,000 last month, with wage growth holding at rates last seen in mid-2021.
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