The US economy added just 22,000 jobs in August, a dismal print that reinforced signs of a slowing labor market already flagged in July.
Friday’s release from the Bureau of Labor Statistics not only showed weaker-than-expected hiring, but revisions that erased 279,000 jobs from May through July, including the first post-pandemic payroll decline, with June’s employment figure turning negative at 13,000.
“Generally speaking, we have a fairly weak jobs report here,” Gregory Daco, chief economist at EY, told Yahoo Finance, noting that “employers are being very cautious with who they hire and how much talent they want to retain on hand.” He added that “the labor market is not collapsing, but it is visibly softening.”
The weak labor market report comes as the Federal Reserve weighs its next interest rate decision later this month. Markets now price in with near certainty that the Fed will cut interest rates by at least 25 basis points, according to the CME FedWatch Tool.
Read more: How jobs, inflation, and the Fed are all related
Other indicators reinforced the slowdown. The latest JOLTS report also showed there are now more unemployed Americans than open jobs for the first time since 2021, a key signal that demand for labor is cooling.
Meanwhile, ADP reported just 54,000 private-sector jobs added in August, nearly half of July’s total and well below estimates. Weekly jobless claims also climbed to their highest level since June, and although ISM data signaled an uptick in services activity, hiring in that sector shrank for a third straight month.
Leslie Falconio, head of taxable fixed income strategy at UBS Global Wealth Management, said the weakness in August only confirmed what other data points had already shown, but argued it wasn’t pronounced enough to justify a larger move from the Fed.
“We all know that September, the 25 basis points was a done deal,” she continued. “I don’t think this is weak enough to push it to the 50, but I do think the market was already really ahead in terms of pricing in this weakness within the labor market.”
‘More spooked’
Wall Street quickly adjusted rate-cut expectations in response to the soft print.
Bank of America, which had been one of the few major firms still calling for no Fed rate cuts this year, reversed course Friday, saying it now expects cuts in September and December. The team noted another move in October is possible but “isn’t our base case.”
Morgan Stanley maintained its outlook for two 25 basis point cuts, also in September and December, but warned the risks are skewed toward additional easing. “We do not see the report as weak enough to justify a 50bp rate cut in September, but it opens the door to rate cuts at consecutive meetings,” Morgan Stanley chief US economist Michael Gapen wrote.
Meanwhile, Oxford Economics pulled its baseline forecast forward, moving its call for the next cut from December to September. “The economy has moderated and the Federal Reserve is more spooked by downside risks to the labor market than by the impact of tariffs on inflation,” the firm said.
For EY’s Daco, the bigger question is what comes next: “I think for September, we’re pretty much going to stick with the view that the Fed is going to be easing with the 25 basis point rate cut. The question is very much what it does after that — October, December, and into 2026.”
Investors viewed the report as reinforcing the Fed’s current path, with Steve Sosnick, chief strategist at Interactive Brokers, describing it as a “heads I win, tails I win” setup.
“’Heads I win’ if the economy is a little bit weaker, that reinforces the idea of rate cuts,” he explained. “And if the economy is a little stronger, that’s good for stocks too. The fact that there wasn’t a catastrophe in this number will be taken as a decent sign by the markets.”
Stocks ended Friday’s session in the red, reversing earlier gains as investors digested the weak report. Still, equities remain near record levels, underscoring the market’s resilience even as economic data shows signs of weakening.
As Keith Lerner, chief market strategist at Truist, put it, “While the path forward is likely to be less smooth than recent months, the bull market still earns the benefit of the doubt.”
Lerner, who expects two rate cuts this year, said broadening earnings strength and improving small-cap revisions should help keep the rally intact, even as policy uncertainty lingers.
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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