US job numbers give rise to hope of a ‘soft-landing’

Signs of a cooling US jobs market yesterday added to hopes that the Federal Reserve has finished raising interest rates – and will steer the world’s biggest economy towards a ‘soft landing’.

Closely-watched non-farm payroll figures showed the economy added a slightly larger than expected 187,000 jobs last month. However, the unemployment rate jumped from 3.5 per cent to 3.8 per cent, and job gains from June and July were revised lower to show 110,000 fewer than previously thought.

The figures solidified expectations that the Federal Reserve, America’s central bank, will not raise rates this month and increased speculation that rates will remain unchanged in November. The Federal Reserve has raised rates by 5.25 percentage points since March 2022, successfully slowing the economy and reducing inflation to 3.2 per cent.

These developments have raised hopes that the objective of lowering inflation can be achieved without causing a recession, known as a ‘hard landing’, by raising rates too dramatically.

The positive jobs data from yesterday fueled optimism on Wall Street, leading to higher stock market openings, while the dollar weakened.

Janet Mui, Head of Market Analysis at RBC Brewin Dolphin, stated: ‘The data suggests the US labor market is loosening but still in good shape, which supports the case for a ‘soft landing’. The Fed may view additional rate increases as unnecessary stress on the economy, considering inflation is heading in the right direction.’

Attention is now turning to when the US might start cutting rates, with the possibility that it may occur next year.

However, markets are also being urged to adjust to the idea that global rates may not return to the near-zero levels seen in recent years.

IMF Deputy Managing Director Gita Gopinath, speaking at a conference in South Africa, stated that rates are expected to remain high for “quite some time” and may never return to the era of ‘low for long’.

Meanwhile, in the UK and Europe, the goal of a soft landing is appearing more challenging to achieve, as evidenced by dire manufacturing figures showing the detrimental effects of rate increases. Purchasing managers’ index figures revealed that UK factories experienced their weakest month in August since May 2020, during the height of the pandemic.

In the Eurozone, the manufacturing sector remains in decline, led by a downturn in Germany, now labeled the ‘sick man of Europe’.