What To Look For In The Upcoming August Jobs Report

With under two weeks until the next Federal Open Market Committee meeting, the next Unemployment Situation Summary for the month of August will be closely watched. The FOMC is generally expected to cut interest rates later in September, and the jobs report may help inform by how much.

Release Timing

The Unemployment Situation Summary for the month of August is scheduled to be released at 8:30 a.m. ET on September 6. This will be the final unemployment report before the FOMC next sets interest rates on at the conclusion of it scheduled meeting on September 18.

Rising Unemployment

Unemployment has generally moved higher in 2024. The unemployment rate was at 3.5% in July 2023 as rose to 4.3% as of July 2024. August’s report will help illustrated whether unemployment is continuing to rise, or whether some of the recent weakness in the labor market seen in July reflected temporary factors or statistical noise. These factors might include seasonal layoffs in certain sectors, and perhaps the weather-related impact of Hurricane Beryl. Federal Reserve Governor Michelle Bowman suggested these temporary issues, among other factors might be impacted recent jobs data in a speech on August 10.

The question remains whether the economy can slow sufficiently to achieve a soft landing, while avoiding a recession. This is historically rare occurrence, but much has been unique about this economic cycle.

A Recession Signal

Despite this the Sahm Rule suggests the U.S. may be in a recession currently as normalized unemployment has moved up by over 0.5% in absolute terms within 12 months. Historically that sort of increase in unemployment has generally meant a recession is likely.

However, this cycle has been unusual in many respects and in this case, it may be that given unemployment remains at relatively low levels, the risks of recession could be lower than the Sahm Rule might suggest.

The Fed’s Reaction

Currently the FOMC is broadly expected to cut interest rates on September 18. This is supported by the implicit view of fixed income markets; recent statements from policymakers including Fed Chair Jerome Powell’s recent Jackson Hole speech; and the minutes from the July FOMC meeting, which suggested various policymakers could have supported a rate cut in July. Generally inflation has cooled sufficiently, that policymakers have signaled that they may be able to ease back from restrictive monetary policy, especially as the job market may be softening.

However, for now, the chance of a 0.25% cut or a a 0.5% cut are broadly equal according to the CME’s FedWatch Tool. The upcoming jobs report may resolve that uncertainty. If the labor market shows further weakness, then the FOMC make chose to cut rates more deeply in September and perhaps beyond. However, if August shows a rebound from the softness seen in July, such that the jobs situation appears more robust, then the Fed may still cut interest rates from restrictive levels, but by the smaller 0.25% increment.

It is clear that policymakers are starting to focus more on jobs data as inflation appears to be running much closer to the FOMC’s 2% annual target than in recent years. However, the August jobs report will help inform whether unemployment is simply normalizing back from very low post-pandemic levels, or is signaling more fundamental signs of weakness in the U.S. economy.