U.S. ECONOMIC MACRO COMMENTARY & INSIGHTS
- Nonfarm payrolls miss analyst expectations
- Historical job market data revised significantly lower
- Market prices in at least one rate cut at September meeting
The macroeconomic news cycle has recently been dominated by headlines entailing the cooling labor market. The nonfarm payrolls and unemployment, Job Openings and Labor Turnover Survey (JOLTS), and ADP employment prints were all released this week. As inflation approaches the Fed’s 2% goal, market participants are highly attentive of the labor market weakening significantly. In mid-August the labor market reported that the U.S. economy created 818,000 fewer jobs than originally reported in the 12-month period through March 2024. Friday’s nonfarm payrolls print showed that U.S. hiring fell short of forecasts in August. According to the Labor Department, the economy added 142,000 jobs, below analyst expectations of 165,000. The August print was an uptick from the July figure, which ignited market fears of an overcooling labor market. The unemployment rate in August ticked lower to 4.2%, which was the first decline in unemployment in five months. The Labor Department also revised down its estimates for June and July job growth by a combined 86,000 jobs. Hiring was weighed down by job losses in the manufacturing, retail, and information sectors. Employment growth was boosted by the leisure and hospitality, construction, and healthcare sectors.
Prior to the nonfarm payroll and unemployment prints, the JOLTS job openings figure was released on Wednesday. U.S. job openings fell in July to the lowest level since the start of 2021, and layoffs rose, consistent with other signs of slowing demand for workers. Available positions decreased to 7.67 million from a downwardly revised 7.91 million reading in the prior month. The figure was lower than all estimates in a Bloomberg survey of economists. The final labor market print released this week was the ADP jobs report. The ADP print dropped to 99,000 from a downwardly revised reading in the previous month. While there was little evidence of outright layoffs in the report, the data did show a sizable reduction in net hiring across the industries. “The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth,” said Nela Richardson, ADP’s chief economist. “The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown.”
The labor market is in vogue with the Fed and market analysts as inflationary price pressures ease toward the Fed’s 2% goal. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) print, was published last Friday. The print detailed that inflation rose 0.2% in the month of July, and 2.5% year over year, in line with analyst expectations. The core PCE also increased 0.2% for the month but was up 2.6% from a year ago. The market is expecting the Fed to cut rates at the September 18 meeting; however, there is no consensus on the size of the rate cut. According to Bloomberg, there is currently a 35% chance of a 50-basis-point rate cut, and a 65% chance that the cut is only 25 basis points. Due to the lack of market clarity on the size of the expected September rate cut, treasury rate volatility surrounding the announcement should be expected.
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