Mixed jobs report adds to US economy concerns

Analysts said the latest figures kept the Federal Reserve on track for a rate cut at its meeting this month, but would do little to resolve questions about the direction of the US economy or how big a cut it should make.

“Rarely has there been such a make or break number – unfortunately, today’s jobs report doesn’t entirely resolve the recession debate,” said Seema Shah, chief global strategist at Principal Asset Management.

Soaring prices in 2022 prompted the Federal Reserve to raise its key lending rate to 5.3%, a roughly 20-year high.

Faced with higher borrowing costs for homes, cars and other debt, the economy has slowed, helping to ease pressures that were fuelling inflation, but adding to market jitters.

As inflation has subsided, falling to 2.9% in July, the Fed is now under pressure to cut rates and ward off further economic slowing.

The job gains in August, although below estimates, were higher than July, when a slowdown sparked fears and prompted several days of stock market turmoil.

Construction and health care firms led the hiring last month, while manufacturers and retailers got rid of roles.

Ms Shah said the data in Friday’s report was mixed, but contained enough worrying signs that the Fed should make a bigger cut.

“On balance, with inflation pressures subdued, there is no reason for the Fed not to err on the side of caution and frontload rate cuts,” she said.

But others said the gains were just steady enough to warrant a 0.25 percentage point cut, as markets have long predicted – though it might be a sign of more cuts than expected in the months ahead.

The Fed’s decision would be “close run”, said Paul Ashworth, chief North America economist for Capital Economics.

“The labour market is clearly experiencing a marked slowdown,” he said, adding that the latest figures were “overall still consistent with an economy experiencing a soft landing rather than plummeting into recession”.