US private payrolls are expected to rebound in August following a disappointing 38,000 job gain in July, which fell short of economist expectations of 48,000 according to the ADP National Employment Report. The latest Reuters survey of economists indicates nonfarm payrolls likely increased by 56,000 jobs last month after declining 23,000 in July, with estimates ranging from as low as another loss of 25,000 jobs to as high as a 121,000 gain. This anticipated recovery is primarily driven by the reversal of a temporary drag from local government education employment, which dropped by 49,600 in July and was expected to rebound in August. The unemployment rate is forecast to remain steady at 4.1% for August, with economists noting that the labor market remains in a 'slow hire, slow fire' mode.
A significant headwind to employment growth comes from the termination of Temporary Protected Status for Haitian immigrants, which economists estimate could create a 15,000 drag on payrolls according to Morgan Stanley chief economist Michael Gapen. As reported by Business Standard, the TPS-affected Haitians account for an estimated 160,000 of national payrolls, with the drag particularly evident in labor-intensive services sectors like healthcare, mostly care-giving. Citigroup economist Veronica Clark noted that "if payroll employment in August is a bit weaker than we expect, we would not necessarily dismiss weakness as only a result of the TPS expiration, as other data like hiring plans have been soft." The Trump administration's broader immigration crackdown through deportations and TPS revocations is shrinking the labor pool, with economists estimating the break-even rate at between zero and 50,000 jobs per month.
The construction sector provided additional support with 12,000 positions added, while job losses were recorded across multiple industries including trade, transportation and utilities, information, natural resources and mining sectors. According to Reuters, there were job losses in the trade, transportation and utilities sector as well as information, natural resources and mining. Natural resources and mining and trade, transportation and utilities each saw payrolls shrink by 5,000. A recovery was also anticipated in the leisure and hospitality industry after losing jobs for two straight months, with economists expecting this sector to contribute positively to August's employment growth. The recovery was expected to be supported by the reversal of local government education employment, which had been a significant drag in July.
Despite payroll challenges, manufacturing sector performance remained positive with factory orders increasing 0.9% in July after declining 0.2% in June, according to the Commerce Department's Census Bureau report. Year-over-year, factory orders advanced 6.5% in July. The rebound was led by a 12.7% surge in orders for civilian aircraft and parts, while orders for motor vehicle bodies, parts and trailers rose 0.4%. Machinery orders increased 0.8%, though computers and electronic products dropped 1.1% monthly but remained up 14.3% year-over-year. Manufacturing, which accounts for 9.4% of the economy, is getting a tailwind from the AI buildout, though the six-month U.S.-Israeli war with Iran is straining supply chains and keeping input prices elevated. An Institute for Supply Management survey showed manufacturers grumbling about higher prices in August because of the war and import tariffs, with some describing the economy as "annoying."
The August employment report is unlikely to significantly impact the Federal Reserve's interest rate decision at the September 15-16 policy meeting, with the focus on next week's Consumer Price Index report. Fed Governor Christopher Waller said at a Reuters NEXT Newsmaker event on Thursday that he was inclined to argue in favor of keeping rates steady this month if upcoming data confirmed inflation pressures were cooling off. Financial markets saw a 50% chance of a rate hike this month, down from 63.2% on Wednesday, according to CME's FedWatch tool. Concerns about inflation and lack of forward guidance from the Fed have helped boost US Treasury yields, which economists said was problematic for the central bank. Rising yields drove the 30-year fixed mortgage rate to a more than one-year high of 6.71% this week, according to Freddie Mac, which could further undermine a struggling housing market.
