Stock prices are cutting gains and heading for big weekly losses after labor market report
Monthly revisions to the August jobs report showed that June and July jobs numbers were revised downward by a combined 86,000, but an economist told Yahoo Finance’s Morning Brief that the revisions do not necessarily indicate further weakness.
“It just confirms the slowdown trend that we all recognized,” said Joe Brusuelas, chief economist at RSM. “I don’t think this represents a threat of a sudden reversal in the labor market.”
Brusuelas pointed out that only around 100,000 new jobs would need to be created in the labour market to keep the unemployment rate stable.
“We have to expect the trend to cool down to about 100,000 a month in the future,” he said. “When you have full employment, as the U.S. economy has – and that’s a good thing – it’s hard to create many jobs. That’s just the way it is. And (the labor market) shouldn’t, because companies have been hoarding workers for years.”
In August, 142,000 new non-agricultural jobs were created in the labor market, fewer than the 165,000 expected by economists. At the same time, the unemployment rate fell slightly to 4.2%, from 4.3% in July.
The debate now revolves around how much the Federal Reserve will cut interest rates. And the answer is not clear.
“We continue to believe the Federal Reserve will cut rates by only 25 basis points during the Federal Open Market Committee meeting in less than two weeks. By updating the dot plot, we can open the door for further rate cuts before year-end based on ‘incoming data,'” wrote Eugenio Aleman, chief economist at Raymond James, in response to the report.
Others predict a reduction of 50 basis points.
“Our base case is 50 basis points,” wrote Andrew Hollenhorst, chief U.S. economist at Citi Research, but acknowledged that “the report is not meaningful in terms of the size of the September rate cut.”
According to the CME FedWatch tool, markets are calculating a 40 percent probability that the Fed will cut interest rates by 50 basis points by the end of its September meeting. A week earlier, the probability was 30 percent.
