US stocks tumbled on Friday after a jobs report stoked new fears that the economy could be headed for a recession.
The Dow Jones Industrial Average fell more than 900 points in morning trading. The S&P 500 fell 2.37 per cent, while the Nasdaq Composite fell by 3.14 per cent, putting it in correction territory as it has lost 10 per cent from its recent record high.
The price of gold, generally considered a safe haven asset, rose 1.30 per cent to $2,513.00 per ounce.
The sell-off came as the US Labour Department reported a softening employment market, with the US economy adding 114,000 jobs last month, down from 179,000 in June and well below economists' expectations of 185,000. Meanwhile, the unemployment rate unexpectedly ticked up to 4.3 per cent, its highest level since October 2021.
“Job creation in the US fell short of expectations for the first time in months, signalling a potential slowing of economic growth,” Mahmoud Alkudsi, senior market analyst at ADSS, wrote in a note to clients.
The latest unemployment rate triggered the so-called Sahm Rule indicator, which says that a recession is nearly under way if the three-month average unemployment rate increases by half a percentage point from its low point in the past 12 months.
“The significant rise in job losers over the past year underscores genuine weakening in labour market conditions that are quickly raising the risk of recession,” Wells Fargo economists Sarah House and Michael Pugliese wrote.
Asked about the Sahm rule on Wednesday, Federal Reserve Chair Jerome Powell called it a “statistical regularity”.
“It's not like an economic rule where it's telling you something must happen,” he said.
“What we think we're seeing is a normalising labour market and we're watching carefully to see if it turns out to be more, it starts to show signs that it's more than that, then we're well-positioned to respond.”
The Fed on Wednesday left its target range for interest rates unchanged at 5.25 per cent to 5.50 per cent. In his post-meeting news conference, Mr Powell telegraphed a likely September rate cut and suggested not all members of the policy setting Federal Open Market Committee wanted to keep rates steady.
“There was a real discussion back and forth of what the case would be for moving at this meeting. A strong majority supported … not moving at this meeting,” he said.
Markets have all but locked in a September rate cut, with 62.5 per cent of traders anticipating the Fed will cut rates by 50 basis points, according to the CME FedWatch tool.
"We don’t think conditions are at the point yet where the FOMC would cut by 50 basis points. However, this very clearly increases concerns about the possibility that there might be more severe weakening to come, in which case, the FOMC wouldn’t hesitate to accelerate cuts," LHMeyer, an independent research advisory service, said in a note on Friday.
"With inflation having come down so much, the FOMC now has much greater latitude to defend its employment goal, if needed, as it confirmed in its recent post-meeting communications."
But there are concerns that the Fed could hold interest rates steady for too long, threatening its hopes of achieving a so-called soft landing. By raising rates to their current level, the US central bank has sought to tame inflation without driving the economy into a recession or ramping up the unemployment rate.
“I would not like to see material further cooling in the labour market,” Mr Powell said.
Friday's losses followed a Thursday session in which the Dow and S&P 500 each fell more than 1 per cent after a weak ISM manufacturing report sparked fears the Federal Reserve may be late in cutting interest rates.
