- August non-farm payrolls report reveals 142,000 new jobs
- Falls short of expectation of 165,000
- Unemployment dropped however from 4.3% to 4.2%
- Stock market futures react flat, bond yields drop slightly
Emma Wall, head of investment analysis and research, Hargreaves Lansdown:
“All eyes are on the US this afternoon, where August data for non-farm payrolls has revealed 142,000 new jobs were added last month. Unemployment dropped, however, from 4.3% to 4.2%.
This mixed data has had a mixed reaction from markets. The S&P 500 is not yet open, but the futures market reacted with flat valuations. Bond market yields dropped slightly in anticipation of a potential rate cut from the Federal Reserve, who may see this data as a sign of economic weakness.
Non-farm payroll data encapsulates all workers in the US excluding those who work in farming, private households, charities, government employees and those who are self-employment. It also excludes on active service in the armed forces. Non-farm payrolls make up around 80% of the labour force in the US and therefore are a key economic measure – and given the importance of the consumer for the US economy, a good leading indicator of economic health.
The US stock market has been dominated by increasingly narrow returns over the past 18 months, with tech stocks – particularly those related to AI development – have driven the rally. But signs of economic weakness have hurt those stocks with toppy valuations, and volatility has increased in recent months. Prior to the jobs data release, analysts predicted a fall of 16% amongst semi-conductor names if numbers undershot expectations. Signs of consumer weakness could indicate a recession risk – typically growth stocks perform more poorly in an economic slowdown as corporates and consumers cut back on spending and focus instead on staples.
Equity analysts are not the only ones on high alert this afternoon – economists will be looking at payroll data to predict what the Fed does next with interest rates. The bond market seems to think that this is sufficient bad news to encourage the Federal Open Market Committee (FOMC) to take the plunge and cut rates later this month.”
