Trifecta of Softening Labor Data Bolsters Fed Easing Prospects and Investor Excitement: Sep. 4, 2025

Markets are rallying following a trifecta of data points detailing slowing labor conditions and bolstering the case for a few Fed rate cuts by year-end. First came ADP’s report, which missed expectations while depicting decelerating hiring and subsequently, initial unemployment claims reflected the greatest level of layoffs in 10 weeks. But then the employment category in an otherwise robust ISM-Services report fell to 46.5, way below the contraction-expansion threshold of 50. And it’s not just soft jobs numbers that has Wall Street excited: President Trump’s nominee for Fed governorship is on track to be confirmed in short order with the Senate Banking Committee holding a hearing with the candidate this morning. Stephen Miran currently supports a looser central bank in light of a lack of inflationary pressures stemming from tariffs, and that too is propelling prospects for monetary policy easing. Almost every equity sector is advancing, while fixed income and the greenback gain as well. The dollar is positive despite cheaper domestic borrowing costs as a result of Miran’s remarks alluding to Fed independence being critical. Forecast contracts, lumber and natural gas futures are also catching bids. Conversely, volatility protection instruments, bitcoin and commodities, including crude oil, copper, gold and silver, are retreating.

Hiring Slowed in August but Trend Is Positive

Private sector hiring slowed last month despite a majority of sectors adding workers, according to this morning’s jobs report from Automatic Data Processing (ADP). The cyclical strength of this print is being overlooked by a weaker headline of 54k, which missed expectations of 65k and retreated significantly from July’s 106k. Nonetheless, the leisure/hospitality, construction, professional/business services, information, natural resources/mining and other services industries added 50k, 16k, 15k, 7k, 4k and 1k employees. In contrast, trade/transportation/utilities, education/health services, manufacturing and financial activities saw payrolls contract by 17k, 12k, 7k and 2k. Furthermore, employers of all sizes experienced heavier headcounts, as small, medium and large companies boosted rosters by 12k, 25k and 18k. Compensation trends decelerated modestly, as the year-over-year (y/y) change in median annual pay declined from 4.5% to 4.4% for job stayers while remaining at a steady 7.1% for changers.

Services Industry Signals Buoyant Consumer Demand

Services sectors in August expanded at the fastest pace since February as robust consumer demand drove momentous business volumes and strong pricing power. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index climbed to 52 in August, beating the median estimate of 51 and arriving above the prior month’s 50.1. The prices, new orders, and production components supported results, flying past the expansion-contraction threshold with figures of 69.2, 56 and 55. But international demand, employment and backlogs limited progress, with weak numbers of 47.3, 46.5 and 40.4. With the majority of previous purchases being filled, service provider hesitated to employ many more workers due to a volatile outlook for customer spending. Still, the publication points to a continuation of the economic reacceleration that began in the second half of this year. 

Initial Unemployment Claims Reach 10-Week High

Layoffs have been trending north lately and hit a 10-week high during the week ended last Sunday, although the data remain in the safe zone from a labor market health perspective. Initial unemployment claims increased to 237k, well above the 230k expectations and the prior period’s 229k. Conversely, continuing filings declined during the interval culminating on August 23, dropping to 1.940 million from 1.960 million; the consensus forecast was at 1.960 million. Four-week averages shifted in bifurcated fashion, however, moving from 228.5k and 1.954 million to 231k and 1.947 million.

Pivotal Jobs Report Tomorrow, Join Us Live  

My 140k expectation for tomorrow’s nonfarm payrolls is well above the consensus estimate of 75k and I think a number between 50k and 150k will be cheered by market participants. A print in that range will still allow the Federal Reserve to deliver several cuts by year-end while the economic cycle and corporate earnings prospects benefit from fiscal stimulus alongside monetary policy easing. Meanwhile, a figure beneath 50k would spook Wall Street and spark slowdown anxiety, resulting in a bearish day for stocks amidst a bullish day for Treasuries. But a result north of 150k would likely scare investors that have been anticipating imminent Fed accommodation, delivering a session of losses to equity and fixed-income holders alike.

Join us live at 8:15 am ET tomorrow via LinkedIn and X as we preview and analyze the report and subsequent market action in real-time.  

International Roundup

European Retail Sales Contraction Worse than Expected

At a time when policymakers are seeking to boost domestic consumption of offset the impact of US tariffs, euro area consumers in July reduced their shopping volumes by 0.5% month over month (m/m), a worse decline than the 0.3% contraction forecasted by the economist consensus and a significant U-turn from June’s 0.6% increase. Relative to July of 2024, they were up 2.2%, missing the economist consensus estimate of 2.4% and decelerating from the 3.5% y/y growth in the preceding month.

On a m/m basis, the automotive fuel sales at specialized stores category and the food, drinks and tobacco group experienced declines of 1.7% and 1.1%. Conversely, non-food products except for automotive fuel increased 0.2%. 

Canada Narrows Trade Deficit

Canada continued to trim its trade deficit in July, but the result marked the six-consecutive month of imports exceeding exports following the US slapping tariffs on the country’s products.

The July trade deficit fell from $5.98 billion in June to $4.94 billion. The economist consensus called for a $5.2 billion deficit. It was also the lowest deficit since March’s negative balance of 51 million, but it was a reversal from the year ago period when exports exceeded imports by $680 million. Increased shipments of crude oil and cars to the US pushed exports to Canada’s southern neighbor up 5%. Meanwhile, shipments from Canada’s largest trading partner sank 2.2%. Regarding non-US partners, the country’s outbound shipments dropped 8.6% while imports climbed 1.3%.

Australia’s Trade Surplus Exceeds Expectations

Australia’s trade surplus climbed from A$5.36 billion to A$7.31 billion in July, easily surpassing the economist consensus estimate of A$4.88 billion. While export growth slowed from 6.3% to 3.3%, imports fell 1.3% after dropping 1.5% in the preceding period, according to the Australian Bureau of Statistics. Exports of non-monetary gold, the rural goods category, which consists primarily of agriculture items, and non-rural items, or manufactured products, ores, coal and metals, grew 8.3%, 5.9%, 1.9%. The growth of exports was driven primarily by demand from China, Japan, and Europe.