WASHINGTON (Reuters) – U.S. job growth in August fell short of expectations, though a decline in the unemployment rate to 4.2% pointed to a gradual slowdown in the labor market. This likely reduces the chances of a significant interest rate cut from the Federal Reserve this month. The Labor Department reported on Friday that nonfarm payrolls increased by 142,000 jobs in August, following a downward revision of July’s growth to 89,000 jobs. Economists surveyed by Reuters had projected an increase of 160,000 jobs, with previous estimates of July’s gain pegged at 114,000. Forecasts for August job gains ranged from 100,000 to 245,000.
Despite the smaller-than-expected rise in payrolls, it likely does not indicate a weakening in the labor market. Historically, August payroll figures tend to come in below estimates and are often revised upward in subsequent reports. The model used by the government to adjust for seasonal factors typically expects a boost in education-related hiring, but since the start of the school year varies nationwide, it can distort these adjustments. Over the last 13 years, August payroll data has been revised upward in 10 of them. Layoffs continue to remain near historic lows.
The drop in the unemployment rate comes after four consecutive months of increases, which had pushed it to nearly a three-year high of 4.3% in July. Early on Friday, financial markets priced in a 43% chance of a half-point interest rate cut at the Federal Reserve’s September 17-18 meeting, with the likelihood of a 25-basis-point reduction at about 57%, according to the CME Group’s FedWatch Tool.
In terms of wages, average hourly earnings grew by 0.4% in August, following a 0.2% rise in July. On an annual basis, wages increased by 3.8%, compared to 3.6% in July. This solid wage growth continues to support the economy through consumer spending.
