After the US Bureau of Labor Statistics released the latest unemployment data on Friday, investment managers discuss what this means for investors, the economy, as well as a potential interest rate hike.

New data from the US Bureau of Labor Statistics shows that the US unemployment rate rose unexpectedly in August at 3.8 per cent, compared with predictions of a 3.5 per cent increase. The figures may suggest that the US Federal Reserve will be less likely to tighten monetary policy when it meets on September 20.

The data also shows that US non-farm payrolls (NFPs) gained 187,000 in August, compared with an expected 170,000, showing a further sign of a slowdown in the world’s biggest economy. Average hourly earnings also rose 0.2 per cent in the month, compared with predications of 0.3 per cent, and against 0.4 per cent in July.

Here are some reactions to the rise from investment managers.

Candice Tse, global head of strategic advisory solutions, Goldman Sachs Asset Management
“Above consensus job creation and slightly higher unemployment shows that the labor market rebalance continues. Broadly, the job market continues to show signs of moderation as the broader economy moves toward a soft landing, reinforcing market expectations that the Fed will keep interest rates steady at the September meeting. With US economic data remaining strong and the Fed providing greater clarity on the policy path forward, investors may find opportunities to generate alpha in both equities and fixed income.

“In equities, high index concentration and optimism about AI have benefited a handful of large-cap stocks, but investors may find broader investment opportunities as markets have become increasingly micro-driven. In fixed income, investors can benefit from attractive yields, still-robust fundamentals, and improved hedging capabilities by maintaining strategic allocations in rates and credit.”

Robert Alster, CIO, Close Brothers Asset Management
“Recent trends across labor market data have shown signs of softening. Job Opening and Labor Turnover Survey (JOLTs) data earlier this week showed that fewer Americans are leaving their jobs, indicating a drop in confidence in the labor market, with job openings falling below nine million for the first time in more than two years. We now see unemployment figures continue to gradually tick down in today’s non-farm payroll report, supporting the ongoing narrative of a solid but generally slowing labor market.

“Markets were left disappointed following a lack of clear guidance from Fed Chief Powell’s speech at Jackson Hole, instead relying on recent economic data points to predict how monetary policy may respond. There are still lingering concerns as to whether the Fed will continue tightening, particularly when we’ve seen relatively robust evidence of rising wages in recent months, which could add to the risk of reaccelerating inflation. Consumers are still spending, despite interest rates and mortgage rates the highest in over two decades. However, markets are pricing in a 90 per cent chance that the Fed won’t hike rates at its next meeting, as it looks to achieve its desired ‘soft landing’.”

Matt Peron, director of research and global head of solutions, Janus Henderson 
“The jobs report continued a trend of market-friendly (and Federal Reserve-friendly) economic data. While the headline was a touch stronger than expected, the details underneath, most notably hourly earnings, were more in line with the softer inflation trend we have been seeing these past few weeks. This should likely keep the Fed in a holding pattern and is supportive of risk assets.”

David Goebel CFA, associate director of investment strategy at wealth manager Evelyn Partners
“This employment update will be welcome news to the Federal Reserve, because a more orderly employment market reduces the risk of inflation becoming more embedded through a wage-price spiral. At the Jackson Hole Symposium, Fed Chair Jerome Powell said "evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response." The chances of a further increase in interest rates by the Fed had been hanging in the balance, but today's figure has put downward pressure on that, which should prove supportive to both equities and bonds. With the hiking cycle coming to an end, markets’ focus is turning instead to how long rates will remain at an elevated level before we see any cuts. Futures markets currently suggest this could be as soon as May 2024.”

Ryan Brandham, head of global capital markets, North America, Validus Risk Management
“US non-farm payrolls came in slightly stronger than expectations, at 187,000 vs 170,000 expected, while US unemployment – a more noteworthy release, and watched closely by the Fed – was higher than expected, at 3.8 per cent vs 3.5 per cent expected. If unemployment begins to rise, this could help bring inflation down to 2 per cent and would build a case for the Fed to hold off on further rate hikes. More data is still to come before the September Fed meeting, which will help to paint the overall picture.

“US GDP also came in weaker than expected at 2.1 per cent vs expected 2.4 per cent. This is a soft number, and perhaps the surprisingly resilient US economy is finally showing signs of slowing after a long rate hiking cycle. This weak figure will support those calling for a Fed pause in September, with more data yet to come before the meeting.”