In what is likely to come as some relief for stock markets, the US central bank is likely to opt for a pause in its interest rate hikes as the August jobs report indicated a further rise in the unemployment rate in the US, said broking firm Centrum.
The US saw a large jump in its unemployment rate from 3.5% in July to 3.8% in August, signaling that the labor market is slowing as higher interest rates start to filter through the economy.
“Going by the August jobs date it is safe to assume that in the September meeting the Fed won't be raising the rates,” Centrum Stock Broking said.
Prices of assets, such as stocks, real estate, cryptocurrency and even art, have seen corrections in the last one year on worries that the US central bank may keep interest rates high in an effort to rein in inflation.
While inflation has largely subsided, the Federal Reserve has continued to remain hawkish in recent months, pointing out that recent interest rate increases have not led to an increase in unemployment.
The US Fed has, since early 2022, taken policy interest rates from 0.25% to 5.5%, the highest in 22 years.
However, August data showed higher unemployment with only modest jobs growth and wage pressures.
“The Federal Reserve's interest rate hikes have caused a slowdown in demand, which is projected to cause the labor market to further loosen up in the coming,” Centrum said.
The report said US employers added 187,000 new jobs, higher than previous month’s revised print of 157,000. The US had been adding 250,000-350,000 jobs per month a year ago. The average monthly gains over the six months was 1,94,000.
Moreover, said Centrum, “it is highly likely that this months data will also be revised downwards in the next month's report.”
“This indicates that the labour market in the United States lost some heat, but not as much as we had expected,” it added.
The report was a surprise for the market and puts emphasis on the Feds argument that they might take dovish stance in the upcoming meet.
In August, more workers came off the side-lines, with the labor participation rate — a measure of workers who are employed or looking for work — edging up to 62.8% in August-23 compared to 62.6% in June and July and the employment-population ratio held at 60.4%.
These measures have shown little net change since early 2022 and remain below their pre-pandemic February 2020 levels (63.3% and 61.1%, respectively). However, a rise in these numbers is seen as ‘normalization’ of the labor markets.
“The rise in labor participation is important for the fed and it has risen to 62.8% in the previous
month compared to 62.1% a year ago,” Centrum said.
In August, the private sector created 179,000 new jobs, led by private education and health with 102,000 jobs. Leisure and hospitality also remains a healthy provider of employment with an increase of 40,000 jobs.