Friday’s US jobs data is a reason for the Federal Reserve “to cut, not to panic”, according to industry commentators.
Non-farm payrolls came in at 142,000 job additions, up from the 114,000 in July that contributed to some of the market anxiety in early August.
The unemployment rate also improved, down 10 basis points to 4.2%, according to the Bureau of Labor Statistics.
However, the S&P 500 fell 1.73% on Friday, with Janus Henderson Investors global head of multi-asset Adam Hetts suggesting the data leaves the market “yearning for more confirmation that the soft-landing narrative is intact”.
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Preston Caldwell, senior US economist at Morningstar, argued that as long as the jobs data continues to trend upwards, the Fed could cut the Fed funds rate in every meeting this year.
“We still don’t think the data calls for a 0.5% per meeting rate cut,” he added. “Measures of economic activity are still going strong, while the labour market is almost never a leading indicator. It’s highly implausible that the labour market is going to spontaneously collapse and bring down the economy with it.
“The labour market data, combined with falling inflation, gives the Fed reason to cut, but not reason to panic. Moreover, bond yields have fallen as investors have incorporated greater expectations of fed-funds rate cuts. That drop in bond yields will soon start to stimulate the economy, which front loads the impact of monetary loosening and reduces the Fed’s need to hurry.”
Julian Howard, chief multi-asset investment strategist at GAM Investments, added that Federal Reserve chair Jerome Powell should take comfort that this major data release reveals nothing that forces a U-turn on their desire to cut rates, as stated at last month’s Jackson Hole symposium, nor pushes them into an emergency-style 50bps cut.
“Lower rates now seem gradually inevitable, Howard said. “What is less certain, is exactly how already-richly valued and increasingly volatile US equity markets will respond.”
“Overall, today’s report is very consistent with an economy that is slowing but not crashing,” Tiffany Wilding, managing director and economist at PIMCO, said.
“Slower payroll growth makes sense in the context of an economy that is getting back to normal after the unique set of economic shocks in recent years, including a surge in immigration. Immigration flows have kept job and labour supply growth strong. However, with more moderate immigration flows this year, labour market momentum is cooling.”
