Unemployment Rate Hits Highest Level Since 2021

Yields fall on weak labor data. UST yields fell 5-8 bps in the immediate aftermath of a strong miss in nonfarm payrolls data (22k actual vs. 75k expected) and a minor uptick in the unemployment rate (4.3%). Yields slightly reversed the move as markets continued to digest the data over the remainder of the session, with the 2-year yield and 10-year yield ending 8-9 bps lower at 3.51% and 4.07%, respectively. Meanwhile, equities sold-off on the weak labor report before also making a slight reversal, with the S&P 500 closing 0.32% lower.

Nonfarm payrolls land below expectations as unemployment creeps up. Nonfarm payrolls grew by 22k in August, well below expectations of 75k; private payrolls similarly underperformed, rising 38k vs. an anticipated 75k. Revised payroll data also emphasized signs of a struggling labor market, as a downward revision showed 13k jobs lost in June, marking the first time nonfarm payrolls have receded since December of 2020. The August unemployment rate, at 4.3% (up 0.1% MoM), fell in line with expectations but marked the highest level since July 2021. One positive takeaway from the release was the labor force participation rate, which grew 0.1% as 436k individuals joined the labor force, helping to offset the increase in unemployment. Today’s print is the latest to raise concerns about a slowing job market, and eyes remain on the Fed as a September rate cut seems increasingly certain.

US – Japan trade agreement signed. Last night, President Trump signed off on a trade agreement with Japan, adjusting the tariff rate on most products to be capped at 15%. This maximum tariff will be retroactively applied to products shipped on or after August 7th. The trade agreement is largely seen as a win for Japan because the 15% rate also applies to automobiles and automobile parts, which are a critical sector of Japan’s economy that previously faced a 27.5% levy. As was also included in the preliminary negotiation process, the trade agreement includes a commitment from Japan to create a $550 billion US investment fund, though specifics of the fund have not been released.