It’s pretty difficult to gauge a country’s economic health. There are loads of factors at play, and a lot of analysis boils down to a matter of opinion.
That’s why everybody pays so much attention to the U.S. government’s monthly Jobs Report.
This collection of official labor market statistics tells you exactly how many Americans are in work, how many aren’t, how fast wages are rising, and everything in between. And those numbers have a direct impact on the stock market.
The next Jobs Report is due to be released on Sept. 5. So, how is it going to affect markets this time? Read on to find out.
What Does the Jobs Report Show?
The U.S. Jobs Report is a fixed monthly publication that comes out on the first Friday of every month. Its official name is the “the Employment Situation Summary,” but you won’t hear too many market watchers calling the report by its full name.
The report is published by the U.S. Bureau of Labor Statistics (BLS), and it offers a comprehensive breakdown of the American labor market.
There are a lot of metrics packed into the Jobs Report. But when we’re talking about potential impacts to the stock market, the headline numbers are:
- Non-farm payrolls: This is the net change in the number of employed people in the U.S. over the last month (excluding farm workers and some government employees). A strong payroll number means job growth, and a weak number means the market is slowing down.
- Unemployment rate: This is the number of unemployed people as a proportion of the labor force. Generally speaking, a lower unemployment rate means a more robust economy.
- Average hourly earnings: This number illustrates wage growth. Rapidly increasing earnings increase a worker’s purchasing power, but can also cause inflation (which leads to a laundry list of problems).
- Labor force participation rate: This is the population of working age Americans that are employed or actively seeking work. Analysts watch this number because it indicates the overall availability of labor.
- Underemployment rate: This measure includes unemployed individuals, those working part-time for economic reasons, and jobseekers who’ve stopped actively looking for work.
Every month, analysts really scrutinize the Jobs Report to gauge the country’s overall economic power. And their take on what these numbers mean ultimately dictates how markets react.
Why Does It Matter?
The metrics in each Jobs Report are effectively an indicator of the country’s economic health. They also spell out encroaching inflationary pressures, and give market watchers helpful hints surrounding industrial performance and consumer confidence.
Here’s how all these issues converge to affect markets:
A Healthy Labor Market Means a Healthy Economy
Generally speaking, a strong labor market means a healthy economy, and a healthy economy means higher share prices.
It stands to reason: The more people we’ve got working, the more people we’ve got spending money. This spending goes on to drive corporate revenues, which has a direct impact on stock prices.
Meanwhile, weak job growth is often seen as a red flag indicating a potential economic slowdown or recession. When this happens, you can expect a downturn in equities.
Rapid Wage Growth Leads to Rate Increases
The report’s average hourly earnings metric has a direct impact on the Federal Reserve’s monetary policy decisions.
When wages are growing too quickly, that means businesses have got to pay more for labor. Those increasing labor costs then get passed down to consumers via higher prices for goods and services.
The Fed aims to keep inflation pinned at around the 2% mark. So when the Jobs Report indicates wages are rising faster than expected, it normally prompts a rise in interest rates. This makes borrowing more expensive, which helps slow down consumption.
The catch-22: When consumption slows down, corporate revenues take a dip. That’s generally reflected in a company’s share prices, so rate hikes can rattle the entire stock market.
Labor Availability Affects Corporate Earnings
Labor cost and availability have a pretty powerful impact on industrial profitability.
When the labor market is tight, businesses are forced to spend more to cover employment costs. This whittles away at a company’s bottom line, which makes shareholders jumpy. On the flip side, some of those cost pressures are alleviated when the labor market eases.
Analysts love to adjust their earnings expectations based on these dynamics, and those expectations go on to affect stock valuations.
Job Growth Drives Consumer Confidence
Higher employment levels and wage growth drive consumer confidence. So when Americans feel like they’ve got job security and their wages are rising, they’re more likely to go out and spend money, right?
That’s why changes in these two metrics can trigger immediate (and sometimes dramatic) reactions on the trading floor.
Any shift in this sentiment can have a significant impact on sectors reliant on high levels of consumer spending. If a Jobs Report hits analysts with higher than expected employment levels, bullish investors might see that as a sign that consumer confidence is going to increase along with it. That means more spending, which drives market prices.
Will the August Jobs Report Trigger a September Fed Rate Cut?
The next U.S. Jobs Report is set to be released on Sept. 5, and everybody’s top concern is how the August numbers are going to impact borrowing rates.
Despite three rate decreases over the last 12 months, the Fed hasn’t budged on its baseline federal funds rate so far in 2025. But July’s Jobs Report triggered a lot of speculation another rate cut could finally be on the horizon.
That’s because wage growth is slowing, and the easiest way for the Fed to stoke economic activity is by making borrowing cheaper.
So, there are a few different scenarios that could play out on Friday.
If the labor market has overperformed in August, it could be inflationary. That’d make the Fed want to hike rates, which has a negative impact on stocks. Conversely, an underperforming market could push traders to start selling off shares.
Yet the most likely scenario we’re going to see on Friday is a “Goldilocks” situation. All the signs we've been seeing over the past few weeks indicate job growth and wage growth are just about right (not much growth, but not contracting either).
Given the relative cooling we’ve seen in the jobs market over the summer, even relative stagnation would likely be enough to warrant a rate cut when Fed members next meet on Sept. 16-17. That should create a decent tailwind for stock prices.
So, is the stock market set to fall on Sept. 5? Probably not, or at least not meaningfully. Slowing growth figures might lead to small, short-term dips. But any potential dip should hopefully be dwarfed by gains made when those same figures (hopefully) convince the Fed into lowering the cost of borrowing later this month.
