by Blaine Dickason
Senior Vice President
Portfolio Management and Trading
Just as the three most important considerations for real estate investors are “Location, Location, Location,” the three things both markets and policymakers were focused on this week were “Jobs, Jobs, and more Jobs” … or fewer jobs as it turned out, with today’s report from the Bureau of Labor Statistics (BLS). The labor market had already assumed the top spot on the market’s wall of worry this summer, taking over from tariff-induced inflation concerns earlier this year. After recent statements by Fed Chair Jerome Powell acknowledging labor market weakness could drive a resumption of interest rate cuts, markets were especially attuned to today’s release.
This morning’s employment report from the BLS indicated that a mere 22,000 net new jobs were added in August, and the unemployment rate rose to 4.3 %, compared to 4.2% in the July report. Compared to the estimates for 75,000 jobs created during August, this was an evident disappointment, only compounded by net downward revisions to prior months. Job creation in June, for example, initially reported as a gain of 147,000, has now been revised to indicate a net loss of 13,000 jobs during that month. The table below shows the trailing three-month average of job gains since the start of the year, and it clearly shows that the trend of slowing job growth has not just been a summer phenomenon. Current Fed Governor Chris Waller, a leading candidate to replace Jerome Powell as Chair of the Federal Reserve next May, highlighted this downward trend when he dissented in favor of an interest rate cut back at their most recent policy meeting in July.
Source: Bureau of Labor Statistics
The changing nature of the American workforce has meant that fewer net new jobs are actually needed to keep the unemployment rate unchanged. Over the prior decade, as many as 150,000 to 200,000 net new jobs were needed every month to accomplish this. However, demographics and the slowing growth of the labor force have reduced this number to closer to 100,000 or fewer jobs per month, which is still well above our recent three-month averages of under 30,000 per month. Initial reactions by the stock and bond markets to this morning’s report were positive as both immediately rallied on the news. However, limits were quickly reached to the ‘bad news is good news’ impulse by the stock market after yesterday’s all-time high of the S&P 500. The same can’t be said for the bond rally, which continued in force as the prospects and implications of a lower interest rate policy were absorbed.
The sum of the labor market data this week continues to suggest that we remain in a “Low Hiring, Low Firing” environment; however, policymakers and especially the Federal Reserve should not take for granted that a 4.3% unemployment rate, while still historically low, is an indication of underlying labor market strength. For most of this year, the Federal Reserve has been more focused on tariffs and the inflation side of its dual mandate; though, given today’s lackluster labor report, that focus will almost certainly swing to focus on its full employment mandate. Financial markets are now anticipating the Fed delivering 0.25% interest rate cuts at each of its three remaining meetings this year, starting with the next one on September 17.
Takeaways for the Week:
The S&P 500 closed at 6,502 on Thursday this week, setting its 26th all-time-high closing level in 2025
The Bureau of Labor Statistics will release their scheduled quarterly review and revision to survey data next Tuesday. This release is estimated to provide additional downward revisions to previously reported employment data in 2025