The US job market is fading, and the economy is becoming increasingly stratified.

The August US labor market report leaves little room for interpretation. Only 22 new non-farm payroll jobs, an increase in the unemployment rate to 4,3%, and softening wage growth (0,3% m/m; 3,7% y/y after 3,9% in July) indicate that hiring momentum is fading. The picture is completed by downward revisions for June and July and stagnation in total hours worked since March.In this situation, the balance of risks in monetary policy is clearly shifting towards deeper easing – a scenario of a 50 basis point Fed rate cut on September 17 cannot be ruled out.

More difficult access to work

Looking at it month by month, the slowdown is clear. In the last four months, the economy created only about 27 new jobs on average, compared to about 123 in the first four months of the year. Furthermore, the announced annual data revision could subtract about 700 jobs from the balance by March 2025. This would mean that average monthly gains were actually about 60 lower than the previously reported 147.

To put it simply, earlier data overstated the strength of the labor market, and the slowdown began earlier and is deeper than current publications suggest.Even if this adjustment doesn't formally appear in the statistics until the January 2026 report, it counts for the Fed's reaction function now—and strengthens the case for a larger September rate cut.

The sources of weakness are primarily demand-side. The hypothesis of a labor shortage is losing credibility: consumer sentiment surveys indicate more difficult access to work, the NFIB survey indicates easier filling of vacancies, and the wage premium for job changers – according to the Atlanta Fed – has disappeared. This is a typical set of signals that historically accompanies the cessation of demand for labor by enterprises.At the same time, the economy is becoming increasingly stratified: segments driven by AI investments continue to absorb capital, while sectors sensitive to financing costs – with construction at the forefront – are increasingly feeling the effects of restrictive monetary conditions.

Inflation-dependent path

For FOMC This is a textbook case of risk management. After a nine-month pause, with a significant decline in hiring momentum and easing wage pressures, a larger, one-time reduction reduces the risk of "falling behind" the real activity cycle. The situation is reminiscent of last year's start of easing - weak data series and a large downward revision preceded the first "big" moveSome FOMC officials may want to emphasize the need for caution, but the influx of data increases pressure to act now, leaving flexibility on the path forward depending on inflation.

The implications for markets are quite simple. If investors start to assume more significant rate cuts, Treasury yields will fall even further—especially short-dated ones. The dollar will likely remain under downward pressure unless the next reading CEP will turn out to be significantly higher than forecasts, which could cause an upward correction in the short term.

Interest-sensitive companies and beneficiaries of AI spending may perform better on the stock market, while cyclical segments may come under pressure if concerns about demand in the economy increase.

The combination of a very weak NFP, a higher unemployment rate, declining wage growth, easier recruitment, and the specter of a large downward revision of the employment level all contribute to a consistent signal of weakening labor demand. In this scenario, a 50-basis-point cut on September 17 cannot be ruled out.

Source: OANDA TMS Brokers