US Stocks Rally as Weak Jobs Report Fuels Fed Rate Cut Hopes
The U.S. economy added just 22,000 jobs in August, far below forecasts, strengthening the case for the Federal Reserve to cut interest rates.
U.S. stock markets rallied on Friday, shaking off early losses after the showed a significant slowdown in hiring, bolstering investor expectations for a Federal Reserve interest rate cut later this month.
The economy added a mere 22,000 nonfarm payrolls, falling drastically short of the 75,000 that economists had forecasted. The unemployment rate also ticked up to 4.3%, its highest level since 2021. The soft labor data spurred a 'bad news is good news' reaction across equities, as traders saw the weakness as a clear signal for the central bank to ease monetary policy.
The S&P 500, which had been down for the week, reversed its losses and is now trading near its all-time highs. The market's interpretation was summed up by Cooper Howard, a director at the Schwab Center for Financial Research, who noted, "It was another weak report and reinforces the case for the Fed to cut rates by 25 basis points later this month." The showed a broad-based rebound following the report's release.
A deeper look into the payrolls data revealed further signs of a cooling economy. Job numbers for June were revised down to show a loss of 13,000 positions, and manufacturing payrolls contracted for the fourth consecutive month. The report also highlighted that the share of individuals unemployed for more than 27 weeks has risen to 25.7%, indicating growing long-term joblessness. This weakness overshadowed a modest 0.3% rise in average hourly earnings.
Investors are now looking ahead to next week's inflation data, including the Producer Price Index (PPI) and Consumer Price Index (CPI), which will be critical inputs for the . The combination of a slowing labor market and persistent inflation will present a complex challenge for policymakers as they weigh their next move.