August jobs report: The 25bps vs 50bps question

Market response

September 6, 2024 | 2 min read

Seema Shah

Chief Global Strategist

The August jobs report was a mixed bag and failed to resolve the recession debate that July’s jobs report had triggered. Non-farm payroll growth picked up in August to 142,000 but was below consensus expectations, while July’s already weak number was downwardly revised to just 89,000. However, offsetting this disappointment was a dip in the unemployment rate and a rise in hours worked. The Fed is set to lower policy rates this month—but today’s labor data has not clarified the question of a 25bps versus 50bps cut.

Non-farm payrolls
Thousands, January 2022–present

Source: Clearnomics, Bureau of Labor Statistics, Bloomberg, Principal Asset Management. Data as of September 6, 2024.

Report details:

Total non-farm payrolls increased by 142,000 in August, less than expected, but a rebound from the weak 114,00 print last month, which was revised lower to 89,000. While August’s employment growth has come in line with average job growth in recent months, it has seen a clear downshift from the strong 202,000 average monthly gain over the past year.
Job gains were most evident in construction and healthcare. The latter has been responsible for an increasing share of employment growth, though it has seen a slowing in job growth, with recent gains declining by roughly half of its average monthly pace over the prior 12 months. Meanwhile, manufacturing and technology saw job losses.
Unemployment declined to 4.2%, as expected, amid a reversal of temporary layoffs associated with summer auto plan retooling shutdowns and weather disruptions. With the number of permanent layoffs essentially staying flat, and with average weekly hours also increasing in the month, both point to signs that the economy is not yet losing a widespread number of workers.
Average hourly earnings accelerated 0.4% in the month, higher than expected, bringing the annual rate to 3.8%, an increase from the prior month’s 3.6%. Earnings growth has remained relatively robust despite the increase in labor supply, a sign that workers still have some bargaining power, with the three-month annualized rise in wages hovering at around 3.8%.

Policy outlook

Last month’s jobs report kick-started a recession debate, triggering sharp equity market declines and raising expectations that the Fed would commence its rate-cutting cycle with a 50 basis points cut. Since then, the economic picture has been more ambiguous, with most investors looking to today’s jobs report to clear up the recession question and the 25bps vs. 50bps debate.

Unfortunately, besides confirming that the labor market is cooling, today’s report provided very little clarity around the urgency for aggressive Fed action. If anything, it added to evidence that, so far, the weakening has just come from an easing in hiring activity, rather than widespread layoffs. From that perspective, defaulting to a 25bps cut at the September FOMC meeting may be the most sensible option.

What seems clearer, however, is that without any glaring household or corporate balance sheet vulnerabilities, Fed easing should be enough to prevent recession—there does not seem to be anything intrinsically broken that policy stimulus cannot fix.

Macro views

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