US Labor Market Exhibits Mixed Signals

In August, the US labour market displayed mixed signals, with employers adding 187,000 jobs, slightly outperforming the consensus estimate of 170,000. Still, data for July was revised downward to 157,000 from the initially reported 187,000. However, unique circumstances, such as a strike in the entertainment industry and trucking company Yellow's bankruptcy, impacted the job figures. Excluding these factors, payrolls were on pace for an approximate increase of 241,000. Furthermore, despite some sectors, such as warehousing and transportation, experiencing labour shortages, others remained resilient, particularly healthcare, leisure and hospitality, construction, and manufacturing.

The unemployment rate also rose to 3.8%, the highest since February 2022 and above the anticipated 3.5%, driven by an influx of individuals entering the workforce due to concerns about an economic slowdown. Meanwhile, the U-6 unemployment rate, also known as the underemployment rate, rose to 7.1% from 6.7% in June. In addition, wage growth moderated slightly as annualized average hourly earnings rose by 4.3%, slightly below the 4.4% expected.

FED SET TO HOLD IN SEPTEMBER?

After 18 months of aggressive tightening, recent macroeconomic developments suggest the Federal Reserve may be nearly done with its rate-hiking campaign. The increase in the US unemployment rate, a recent rise at the long end of the US yield curve, and overall weakening global growth could signal that the economic slowdown the Fed has been seeking may be here. However, US consumer spending remains hot, as do real wages, which poses a dilemma for the Fed moving forward.

As measured by the Fed's preferred PCE Price Index, inflation has remained elevated, with the annual Core PCE Price Index rising to 4.2% in August. Given PCE is still well above the Fed's target, one might suggest there is still more tightening need on the monetary policy front. Still, a slowdown in price pressures is evident, as reflected in the 0.2% monthly increase in both indexes in August.

Want to read more? Download the full report here.