USA: economists skeptical after August employment figures

(CercleFinance.com) - Economists on Friday greeted with some skepticism the contrasting US employment figures released earlier in the day, which in their view do not settle the debate between the prospect of a 25 or 50 basis point rate cut by the Fed in just under two weeks' time.


According to the Labor Department, the US economy created just 142,000 non-farm jobs in August, well below market expectations of around 165,000.According to the Labor Department, the U.S. economy added just 142,000 nonfarm jobs in August, well below market expectations, which were generally in the order of 165,000.

The unemployment rate nevertheless eased by 0.1 points to 4.2% last month, whereas economists were expecting it to remain stable at 4.3%.

On Wall Street, U.S. equity markets traded in mixed order on Friday morning, despite the release of the monthly U.S. employment report, which was deemed rather disappointing.

As much of the bad news has already been priced into the markets over the course of the week, the market's expected decline through to the close could be contained", explains Florian Ielpo, Head of Macroeconomic Research at Lombard Odier Investment Managers.

These figures do, however, bolster expectations of a marked slowdown in the economy in the third quarter, already fuelled by the half-hearted statistics unveiled in recent weeks.

The labor market clearly remains a cause for concern", write Commerzbank's economists.

Although the labor market has lost some of its dynamism, its state of health does not seem sufficiently worrying to seriously contemplate a hard landing for US growth, or even a possible slide back into recession.

Another reason to reassure market participants is that these data could prompt the Federal Reserve to accelerate its rate cuts, even if the extent of the cuts is still unknown.

"This generally poor employment report makes a 50bp rate cut by the Fed in September a little more credible", says Bastien Drut, Head of Strategy and Economic Research at CPR AM.

At the Jackson Hole conference, Jerome Powell had said that the Fed would 'do everything it can to support the labor market'", the analyst recalls.

"With this jobs report confirming a further deterioration, a 50-basis-point rate cut by the Fed is clearly on the table", he concludes.

Other specialists, meanwhile, feel that the jobs report does not make it possible to say whether the Fed will opt for 25 or 50 basis points of easing on Wednesday September 18.

'As with many recent jobs market data, the confusion persists', moderates Florian Ielpo, Lombard Odier's economist.

'These data do not necessarily encourage the Fed to cut rates by 50 basis points in September', he continues.

The sense of urgency isn't there yet, and it's already possible to do a lot with a 'dovish' (accommodative, editor's note) statement in September", believes the analyst.

According to the CME Group's FedWatch barometer, the majority of traders still favor a 25 basis point rate cut, with an estimated probability of 61%, while the likelihood of a 50 basis point cut is estimated at 39%.

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