US Employment Rate Steady Amid Mixed Job Market Signals

The US employment rate is expected to hold steady at 4.1% in August, according to a closely watched employment report by the Labour Department. This stability comes despite a mixed outlook for job growth, influenced by various economic factors.

Payrolls Rebound Expected

Nonfarm payrolls are projected to increase by 56,000 jobs in August, following a decline of 23,000 in July, as per a Reuters survey of economists. Estimates for August's job growth range from a loss of 25,000 jobs to a gain of 121,000. The anticipated rebound is partly attributed to a recovery in local government education employment, which dropped by 49,600 in July, and expected gains in the leisure and hospitality sector.

Impact of Haitian Immigrants' TPS Termination

The termination of Temporary Protected Status (TPS) for Haitian immigrants poses a potential drag on job growth. Michael Gapen, chief economist at Morgan Stanley, noted, "We are assuming a 15,000 drag on payrolls from the revocation of Temporary Protected Status for unauthorized Haitian immigrants." TPS-affected Haitians account for an estimated 160,000 of national payrolls, and the impact could be larger than anticipated.

Labour Market Dynamics

The labour market has slowed after a surge in the spring, affected by factors such as oil price shocks and supply chain issues stemming from geopolitical tensions. Brian Bethune, an economics professor at Boston College, commented, "Businesses felt some of the problems from 2025 were behind, then all of a sudden we get another black swan event that introduces a new set of uncertainties."

Economists estimate the break-even rate for job creation to keep up with the working-age population growth at between zero and 50,000 jobs per month. Reduced labour supply, due to retirements and lower immigration flows, is maintaining a lower unemployment rate, although some economists expect it to rise to 4.2% in August.

Federal Reserve's Interest Rate Outlook

The upcoming employment report is unlikely to influence the Federal Reserve's interest rate decision at its meeting on 15-16 September, with attention focused on the Consumer Price Index report. Fed Governor Christopher Waller indicated a preference for keeping rates steady if inflation pressures appear to be cooling.

Financial markets currently see a 50% chance of a rate hike this month, down from 63.2% earlier, according to CME's FedWatch tool. Rising US Treasury yields have been a concern, with the 30-year fixed mortgage rate reaching a more than one-year high of 6.71%, potentially impacting the housing market.

Boston College's Bethune remarked, "The markets have already dialed in tightening on the yield curve; we got 75 basis points of tightening and that’s going to slow down the economy."