US August non-farm payrolls increased by only 22,000 jobs, significantly below market expectations, with the unemployment rate rising to 4.3%, reinforcing market expectations for a Federal Reserve rate cut in September.

On September 5 local time, the US Department of Labor released pivotal employment data showing that August non-farm payrolls added only 22,000 jobs, far below market expectations, with unemployment rising to 4.3%.

This data has virtually locked in market bets that the Federal Reserve will initiate rate cuts at its September meeting, while strengthening investor expectations regarding the pace and magnitude of rate reductions.

As of press time, according to the Chicago Mercantile Exchange's (CME) "Fed Watch" tool, markets have completely ruled out the possibility of the Federal Reserve maintaining rates unchanged in September, with the probability of a 25 basis point cut at 89% and the probability of a 50 basis point cut rising from 0% before the data release to 11%. The probability of another 25 basis point cut at the October meeting approaches 80%.

**Employment Data Falls Short of Expectations**

The data showed that seasonally adjusted US non-farm payrolls added only 22,000 jobs in August, far below the market expectation of 70,000. Breaking it down by sector, private sector employment increased by only 38,000, while government sector employment decreased by 16,000. Education and healthcare remained the largest contributor with 46,000 new jobs, while manufacturing employment decreased by 12,000.

July non-farm payroll additions were revised upward to 79,000, but June data was further revised downward to a negative 13,000, marking the first negative reading since January 2021. The combined two-month revision reduced total job additions by 21,000 compared to previous data.

The US unemployment rate rose to 4.3% in August, the highest since October 2021. The broader U6 unemployment rate rose to 8.1%, which includes not only the officially unemployed but also those who want full-time work but can only find part-time jobs, as well as those who looked for work in the past year but have recently stopped actively job hunting, better reflecting real pressure in the labor market.

Despite weak job creation data, some indicators remained stable. Labor force participation rate rose slightly to 62.3%, with the participation rate for the prime working age group of 25-54 years rising to 83.7%, near historical highs. Average hourly earnings increased 0.3% month-over-month and 3.74% year-over-year, both in line with market expectations.

White House National Economic Council Director Hassett commented after the data release that the new employment report data was "a bit disappointing" but "expected it to be revised upward."

Hassett noted that the Bureau of Labor Statistics has been struggling with "low response rates" to employment surveys.

Against the backdrop of the Bureau's credibility being affected by political turmoil, the latest report has drawn increased market attention. In early August this year, just hours after the July employment report was released, President Trump suddenly announced the dismissal of Bureau of Labor Statistics Commissioner Erika McEntarfer, accusing her of manipulating employment data for political purposes. Subsequently, Trump announced the nomination of E.J. Antoni, chief economist at the conservative Heritage Foundation think tank in Washington, as the new commissioner.

**Accelerated Rate Cuts?**

Weak employment data has reinforced market bets on Federal Reserve rate cuts.

Bank of America Global Research adjusted its forecast after the data release, expecting the Fed to cut rates by 25 basis points each in September and December this year, whereas the bank previously believed there would be no rate cuts for the full year. "The August employment report may intensify Fed concerns about labor market weakness. There is now clearer evidence that labor demand is deteriorating, not just supply deterioration," analysts further wrote. "If the labor market weakens significantly further, the Fed may also cut rates in October."

Wells Fargo economists predict the Federal Reserve will cut rates by 25 basis points at each of the remaining three policy meetings this year, bringing the federal funds rate target range to 3.50%-3.75%.

Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, believes: "The latest data gives the Fed sufficient room to cut rates. There are some concerning signs: insufficient job growth, overall data below expectations, and rising U6 under-employment numbers. The Fed may choose to cut rates by 50 basis points this month and continue taking action in subsequent meetings to support the economy."

Before the Federal Open Market Committee (FOMC) meeting on September 16-17, the Federal Reserve will receive an inflation data report on September 11 local time. Currently, markets widely expect August US Consumer Price Index (CPI) to rise 0.3% month-over-month and 2.9% year-over-year, increases of 0.1 and 0.2 percentage points respectively from previous readings.

Olu Sonola, Head of US Economic Research at Fitch, stated: "The weaker-than-expected employment report almost guarantees a 25 basis point rate cut later this month. In the near term, the Fed may prioritize labor market stability over inflation targets, even if inflation deviates further from 2%."

Fed Chairman Powell warned last month that with hiring slowing down, the historically low layoff rate could lead to rapid unemployment increases once it rises. The latest data shows that over a quarter of unemployed individuals have been job searching for more than 27 weeks. Analysts believe this intensifies concerns about labor market deterioration and adds pressure to Federal Reserve decision-making.