Introduction to the US Jobs Report
The US jobs report for non-farm payrolls was highly anticipated last week. Employment data can significantly impact expectations for economic growth, inflation, policy rates, and stock valuations. This report was particularly important because markets were waiting to see what the Federal Reserve (Fed) would do regarding monetary policy. There were also concerns about the politicization of the data. If the data had exceeded expectations, there might have been skepticism about its credibility. However, the report showed a slowdown in job creation, consistent with the ADP private payroll data.
Jobs Data Support a September Rate Cut
While the September 5 report showed job growth had slowed, it doesn’t appear to be signaling a recession. Demand for workers has eased, but layoffs remained limited. Labor supply has also declined due to retirements and reduced immigration. With the slower job growth in the September 5 report, it appears that the Fed is now all but guaranteed to cut rates on September 17. A 25-basis point (bps) cut is fully priced by the market, and some Federal Open Market Committee (FOMC) members might vote for a 50-bps cut. However, this might not be warranted at this stage. The report showed that just 22,000 jobs were created in August, and the June and July figures were revised lower by a cumulative 21,000. The unemployment rate climbed to 4.3%, broadly in line with consensus forecasts. Average weekly hours worked also fell, which can be taken as a further signal that employers need their staff to do less work.
Good News for Markets?
When inflation is elevated, weaker job growth can be interpreted as good news for markets. It can mean that the economy isn’t overheating and that a sustained period of inflation is unlikely. It can also suggest that multiple rate cuts may be on the horizon. Lower yields across the Treasury curve can support stock valuations. Slower growth, anchored inflation expectations, falling yields, and anticipated rate cuts point to an optimistic outlook for stocks.
Long Bond Sell-Off Isn’t a Reason for Panic
Interest rates rallied across the U.S. Treasury yield curve on Friday, following the weaker-than-expected jobs report that shifted investor focus toward signs of economic softness. This marked a notable reversal from earlier in the week, when concerns were mounting over the rise in 30-year US Treasury yields. The initial selloff was driven by a mix of inflation worries, questions about the Fed’s independence, and growing unease over US fiscal sustainability. By week’s end, however, those concerns had eased, and attention turned to the weakening economic data, sending the 30-year yield plunging below 4.8%. The US wasn’t alone in experiencing upward pressure on long-term rates — France, the UK, Japan, and others also saw similar moves.
Gold Rush
Driven by concerns around fiscal sustainability and central bank independence, as well as expectations for Fed rate cuts, gold experienced a meaningful rally in recent weeks. Since mid-August, the precious metal has surged more than 8% on the back of a rise in long-end sovereign bond yields, the attempted firing of Fed Governor Lisa Cook by the White House, and hints of a potential policy pivot from Fed Chair Jerome Powell at the Jackson Hole Symposium. Gold has now notched three consecutive weeks of gains — its longest win streak in six months — pushing prices to record highs approaching $3,600 per troy ounce. Despite already posting double-digit returns in both 2023 and 2024, gold is up nearly 35% year-to-date, and the fundamental drivers behind its performance remain firmly in place. These include persistent central bank buying, investor demand for hedges against fiscal and geopolitical uncertainty, and the prospects for lower interest rates may diminish the relative appeal of holding cash.
Conclusion
The recent US jobs report has significant implications for the economy and markets. The slowdown in job creation supports the likelihood of a September rate cut by the Fed, which could have a positive impact on stock valuations. The long bond sell-off, while notable, does not seem to be a reason for panic. Meanwhile, gold has experienced a surge in price, driven by concerns around fiscal sustainability and central bank independence, as well as expectations for Fed rate cuts. As the economy and markets continue to evolve, it will be important to monitor these trends and their potential impacts on the future.
