Global markets braced for essential US jobs knowledge

All eyes on Washington: Jerome Powell has already indicated that the time has come for interest rate cuts

Fears of a slowdown in the world’s biggest economy will take centre stage this week with the publication of the latest US jobs figures.

Markets will be on tenterhooks ahead of the non-farm payrolls data for August, due on Friday.

It comes after a worse-than-expected reading for the previous month sparked a global share sell-off.

Those jitters have since eased but another set of disappointing figures could add to worries that a US recession is in the offing.

The effects could ripple across the globe as investors assess the impact on US interest rates as well as the election battle between Kamala Harris and Donald Trump.

Economists expect Friday’s figures to show 163,000 jobs were created in August and that the unemployment rate in the country will fall from 4.3 per cent to 4.2 per cent.

If the jobs figure falls short or the unemployment rate is higher, speculation could build that the Federal Reserve – the US’s central bank – will have to take drastic action.

Markets are already certain that the Fed will cut rates for the first time since 2020 when they meet later this month.

Traders think a quarter percentage point rate cut is most likely but see a one-in-three chance of a jumbo half-point move. The latter will look increasingly likely if the job figures point to a downturn.

Fed chairman Jerome Powell has already made clear that a weaker employment market is on the mind of the rate-setting Federal Open Market Committee (FOMC) as he all but confirmed that a cut of some sort is on its way. Powell told an audience of central bankers last month that ‘the time has come’ for a move.

Evidence over the last few weeks about the health of the US economy has been mixed.

Official figures last week were revised up to show gross domestic product grew at an annualised pace of 3 per cent in the second quarter, up from an initial estimate of 2.8 per cent. And separate weekly data showed that the number of Americans filing new applications for jobless benefits slipped. That will have added to hopes that the US economy is enjoying a ‘soft landing’ – where falling inflation is not accompanied by a downturn. But America’s unemployment rate has risen sharply, from 3.7 per cent in January to 4.3 per cent in July.

And a bombshell update last month revealed that 818,000 fewer jobs had been created in the year to March than previously believed. It was described as a ‘massive scandal’ by Trump. Investec economist Philip Shaw said: ‘The unemployment rate in the US has risen at a rate that has raised recession fears.’

Shaw said that although the data is ‘not flashing red yet’ a further clear deterioration in the labour market could steer interest rate-setters into more aggressive cuts.

He added that the forthcoming jobs data ‘will therefore be crucial in determining not only expectations for Fed policy, but the extent to which the US economy is showing signs of a slowdown’.