Summary: US non-farm payrolls up 142,000 in August, below expectations; previous two months’ figures revised down by 86,000; jobless rate ticks down to 4.2%, participation rate steady at 62.7%; Westpac: jobless rate in modest uptrend; US Treasury yields fall; expectations of Fed rate cuts firm; ANZ: well below monthly gain necessary to sustain labour market balance; employed-to-population ratio steady at 60.0%; underutilisation rate rises to 7.9%; annual hourly pay growth speeds up to 3.8%.
The US economy ceased producing jobs in net terms as infection controls began to be implemented in March 2020. The unemployment rate had been around 3.5% but that changed as job losses began to surge through March and April of 2020. The May 2020 non-farm employment report represented a turning point and subsequent months provided substantial employment gains which have continued to the present.
According to the US Bureau of Labor Statistics, the US economy created an additional 142,000 jobs in the non-farm sector in August. The increase was less than the 165,000 rise which had been generally expected but more than the 89,000 jobs which had been added in July after revisions. Employment figures for July and June were revised down by a total of 86,000.
The total number of unemployed decreased by 48,000 to 7.115 million while the total number of people who were either employed or looking for work increased by 120,000 to 168.549 million. These changes led to the US unemployment rate ticking down from 4.3% in July to 4.2%. The participation rate remained steady at 62.7%.
“The unemployment rate rounded down to 4.2% in the month, but remains in a modest uptrend, with an upwardly-skewed risk profile,” said Westpac economist Jameson Coombs.
US Treasury bond yields fell on the day, especially at the short end of the curve. By the close of business, the 2-year yield had shed 9bps to 3.65%, the 10-year yield had lost 2bps to 3.71% while the 30-year yield finished unchanged at 4.02%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months firmed, with nine 25bp cuts now fully factored in. At the close of business, contracts implied the effective federal funds rate would average 5.20% in September, 4.70% in November and 4.43% in December. August 2025 contracts implied 2.94%, 239bps less than the current rate.
“The three-month payrolls average is currently 116,000, well below the estimated 200,000 monthly gain necessary to sustain balance in the labour market,” said ANZ economist Sophia Angala. “The FOMC has a dual mandate and given that inflation is approaching target, delivering on the full-employment mandate means interest rates must be cut.”
One figure which is indicative of the “spare capacity” of the US employment market is the employment-to-population ratio. This ratio is simply the number of people in work divided by the total US population. It hit a cyclical-low of 58.2 in October 2010 before slowly recovering to just above 61% in early 2020. August’s reading remained unchanged at 60.0%, some way from the April 2000 peak reading of 64.7%.
Apart from the unemployment rate, another measure of tightness in the labour market is the underutilisation rate. The underutilisation rate registered 7.9% in August, up from 7.8%. Wage inflation and the underutilisation rate usually have an inverse relationship but private hourly pay growth in the year to August still managed to speed up from 3.6% to 3.8%.
