Labor market slowing across the board

Nonfarm payrolls increased by only 142,000 jobs in August, significantly below the expected 165,000 and marked by a downward revision of 86,000 jobs for June and July combined. The adjusted figures indicate a meager gain of 56,000 jobs, while the three-month average gain of 116,000 is the slowest since 2020.

The unemployment rate improved slightly to 4.2%, down from a three-year high of 4.3%, but labor impairment, as measured by the broader U-6 rate, rose to 7.9%. The Labor Department's recent revisions revealed an 818,000 decrease in payroll counts from April 2023 through March 2024, the largest reduction since the Global Financial Crisis.

Wage inflation showed unexpected acceleration, with a 0.4% month-over-month increase in August. The manufacturing sector faced significant job losses, with a decline of 24,000 positions and a manufacturing index of 47.2 indicating continued contraction.

As the Fed approaches its next meeting, expectations lean toward emphasizing labor market weaknesses over inflation concerns, potentially leading to interest rate cuts. Overall, equity markets exhibit a risk-off sentiment due to these factors, alongside a notable decline in stocks and a flight to safety seen in lower Treasury yields.

Labor market indicators, including the ADP payroll survey which reported only 99,000 new jobs, and rising layoffs primarily in the technology sector, suggest a growing risk of stagflation. The participation rate remained steady at 62.7%, but there are signs of a widening K-shaped recovery, particularly affecting less-educated workers.

Sector-specific changes showed declines in temporary help and retail jobs, while construction and leisure & hospitality added jobs.