US unemployment rate drops to 8.4% as labour market rebounds further

US employers added 1.4m jobs in August, sending the unemployment rate down to 8.4 per cent, below the peak of the great recession, as the labour market rebound advanced in the world’s largest economy.

According to data released on Friday by the Bureau of Labor Statistics, businesses last month continued to rehire some of the workers they shed during the pandemic, albeit at a weaker pace than in July.

Even with those gains, which were buoyed by temporary government hiring for the 2020 census, the US has recovered slightly less than half the jobs lost at the start of the coronavirus crisis.

The figures showed an encouraging drop in the unemployment rate to 8.4 per cent, putting it well below the 10 per cent seen in the aftermath of the financial crisis.

The report also showed the labour force had increased by 968,000, reversing a small decline in July, meaning more Americans were working or seeking work. The labour force participation rate jumped from 61.4 to 61.7 per cent last month.

“While there is a bit of a slowdown in hiring, once you strip out the census numbers, this is still a positive surprise,” said Brian Coulton, chief economist at Fitch Ratings. “We still see economic growth slowing as we get into the fourth quarter — as the boost to activity from reopening fades — but the summer rebound has been stronger than we initially thought,” he added.

Leisure and hospitality recovered 174,000 jobs, a much slower rate of hiring than the 621,000 jobs created in July, while new jobs in healthcare and education fell from 222,000 to 147,000 last month. Retailing added 249,000 positions, a small increase from the previous month. The manufacturing sector brought back 29,000 jobs after adding 41,000 positions in July, while government jobs rose by 344,000 on the back of the census-related hiring.

Overall, the US economy has regained about 10.6m of the 22.2m jobs lost during March and April, but the rebound has been held back by new infection surges in many states in recent months, and the fading effects of fiscal stimulus.

“This is not a blowout report by any means, but it does show incremental improvement,” said David Joy, chief market strategist at Ameriprise.

The slowing jobs momentum in the establishment survey — which measures hiring by employers — was at odds with the brighter picture emerging from sharp decline in joblessness revealed in the household survey, which measures the unemployment rate.

But the household survey is typically more volatile compared with the establishment survey and measures job creation across different industries. It includes a broader swath of the economy, such as the self-employed and farm workers, which could account for the difference.

During the pandemic, it has been dogged by misclassification errors, with some furloughed workers being improperly categorised as employed but on leave, which has flattered the unemployment rate. In August, the BLS said the true jobless rate might have been higher by up to 0.7 percentage points without those mistakes.

Even so, there were some worrying signals in the household survey as well. While the number of temporarily unemployed Americans dropped by 3.1m last month, the number of permanently jobless workers rose by 534,000. In addition, the jobless rate for blacks or African-Americans remained at 13 per cent in August, compared with 7.3 per cent for whites, in a sign of the uneven distribution of the labour market gains along racial lines.

The monthly release from the US labour department is the penultimate reading on the labour market before the presidential election in November, adding to its political significance.

Stewardship of the coronavirus-ravaged economy is a key flashpoint between Donald Trump and Joe Biden, his Democratic challenger for the White House. Mr Biden was expected to speak about the economy from his home base in Wilmington, Delaware, later on Friday, his campaign said.

Congressional leaders in the White House prepared for talks in the coming weeks over a new round of fiscal stimulus for the US economy, which many economists and Federal Reserve officials believe is crucial for the recovery.

Democrats have proposed an additional $3tn in spending, but Republicans have balked, in a stalemate that has lasted since May and caused emergency unemployment benefits to lapse for millions of Americans.

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Some investors have expressed concern that the solid jobs data may strengthen Republicans’ hands in the upcoming negotiations with Democrats over the scope and scale of the next relief package. But according to Chris Iggo, chief investment officer for core investments at AXA Investment Managers, there is still strong interest in a deal.

“Both sides will want to see measures in place to boost growth and claim it was their plan ahead of the election,” he said.

US Treasuries sold off following the release of the jobs report, sending yields higher. The yield on the benchmark 10-year note rose 0.05 percentage points to 0.69 per cent. Ultra-long 30-year bond yields also edged higher, climbing 0.07 percentage points to 1.43 per cent. The reaction was more muted for shorter-dated Treasuries, with two-year yields hovering at 0.14 per cent. 

US stocks sold off, with the benchmark S&P 500 down nearly 2 per cent.

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