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US economy creates 130,000 jobs in August

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US jobs growth slowed to its weakest level in three months in August despite a boost from temporary hiring for census workers, as uncertainty stemming from the US-China trade war weighed on the labour market, adding pressure to the Federal Reserve to cut rates this month.

Non-farm payrolls rose by 130,000 last month, data from Bureau of Labor Statistics showed on Friday, short of Wall Street’s expectation for 158,000, according to a Thomson Reuters survey of economists.

That followed downward revisions to job growth in each of the two previous months, resulting in 20,000 fewer jobs that previously reported.

The report showed employment in federal government increased by 28,000, driven mostly by the hiring of 25,000 temporary workers to prepare for the 2020 Census. Private payrolls increased by 96,000 the slowest in three months.

Job growth has averaged 158,000 per month thus far this year, below the average monthly gain of 223,000 in 2018.

The report also showed average hourly earnings rose 0.4 per cent last month, translating to 3.2 per cent year-on-year wage growth, although this was a slip from July’s upwardly-revised 3.3 per cent gain. Economists had forecast a 0.3 per cent and 3.1 per cent rise, respectively.

The unemployment rate held steady at 3.7 per cent for the third consecutive month.

US stock futures pared their gains following the data with S&P futures up 0.3 per cent, while Treasury yields dropped, with that on the two-year note down 1.6 basis points at 1.5261 per cent and that on the 10-year down 0.5 basis points at 1.5602 per cent. Yields move inversely to price.

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The morning’s data add to signs the US economy is losing momentum despite strong consumer spending. Investors were caught off guard this week after data showed the domestic manufacturing sector contracted for the first time in three years in August.

Recent data on the jobs market have been mixed. The ISM manufacturing survey’s employment sub-index contracted for the first time since 2016 but the ADP report showed private hiring ramped up last month.

Even Friday’s non-farm payroll report had some bright spots, with weekly work hours and hiring for temporary workers firming up. These are considered early indicators for labour market weakness as companies typically cut temporary workers and employee hours when faced with an uncertain business environment and economic slowdown.

Still, the data step up pressure on the Fed to deliver a 25 basis point rate cut when it meets later this month. The central bank reduced the benchmark interest rate in July for the first time since the recession amid “uncertainties” linked to weakness in the global economy and simmering trade tensions.

Policymakers are tasked with weighing up the economic fallout of the US-China trade war — which chairman Jay Powell said poses a “new challenge” for the central bank’s policy framework — alongside sluggish inflation that is running below the Fed’s 2 per cent target.

Economists did, however, note not all of the weakness in the labour market could be attributed to trade, with the downshift in private sector jobs concentrated in services like retailing, finance and business services.

“These can’t all be blamed on the trade war, so we think the odds favour a partial rebound in September,” said Ian Shepherdson economist at Pantheon Macroeconomics. “But the trend is softening, as firms scale back hiring plans alongside capital spending, in the face of prolonged and deep uncertainty.”

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Via Financial Times

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