Employment in Pictures – Healthy Jobs Market Continues to Give Fed Green Light

- Bloomberg – US Adds 315,000 Jobs as Participation Jumps and Wages Rise
  US employers added jobs at a healthy, yet more moderate pace in August, and participation posted a sizable increase, offering little evidence of any kind of definitive slowdown despite a jump in unemployment. Nonfarm payrolls increased 315,000 last month following a revised 526,000 advance in July, a Labor Department report showed Friday. The unemployment rate unexpectedly rose to 3.7% as the participation rate climbed. Economists projected an almost 300,000 gain in payrolls and a 3.5% jobless rate, based on the median estimates in a Bloomberg survey.

Comment

When the pandemic took hold and quarantines began in 2020, the payrolls report became one of the most important economic releases each month. With many people either getting sick or being laid off due to lockdowns, employment statistics offered a way to measure the severity of the pandemic and its effect on the economy. Now that the labor market has recovered all of the jobs lost during the pandemic, the focus has moved to monthly inflation releases.

However, as we argued recently, the payrolls report may still play a role in determining just how aggressive the Fed may be in fighting inflation.

The markets are now in a strange place where good economic news may be bad news for financial conditions (and vice versa). Simply put, the strong labor market is giving the Fed cover to continue punishing the stock market. This morning’s release does little to change that.

Heading into this morning’s release, economists expected a median of 298k jobs added. The standard deviation of estimates was 61k, so the actual release of 315k was essentially right on the screws.

The payroll report did little to move the market’s thinking about the September 21 FOMC meeting. Understandably, they will wait for the August CPI release before forming a strong consensus around 50 or 75 basis points. Until then, we expect the odds to continue to vacillate around 50/50.

While today’s report was right in line with expectations, it technically was also the seventh time in the past eight releases that economists underestimated the actual release. Perhaps economists are convinced aggressive rate hikes will kill the labor market, creating a bit of a bias in their estimates.

On a 12-month basis, wage growth continues to lag core inflation.

However, over a shorter annualized timeframe, there may be signs for hope. On a 3-month annualized basis, wage growth outpaced core inflation for the first time since November 2021.

Today’s release simply sets the table for the September 13 CPI report. With the labor market looking strong, the Fed continues to have enough cover to hike several more times. Questions still remain about the Fed’s eventual terminal rate, but that will come into focus as the data unfolds.

The interactive charts below break down the labor market in a number of categories. Each tab defaults to show what we consider some of the more interesting series, but additional options are available in the drop-down menu.