A few quick takeaways from this morning’s payroll report:
- Non-farm payroll for August 2022 grew by +315,000, right in line with the +318,000 estimate. It’s actually an aberration that it came in so close to the estimate. These are complex statistical models prone to be off in any one month by hundreds of thousands of expected jobs. Revised August numbers announced next month will be more telling if the economic slowdown underway is impacting/hitting the labor market.
- The unemployment rate grew (finally) by +.2% to 3.7%, the highest reading in the past year. Labor participation rate on the uptick – more people are coming back into the labor market and that’s a good thing on many fronts. I think we’d need to see unemployment grow to >4% before anyone can call this economy in recession.
- Wages grew but not as much as estimates were predicting. Average hourly earnings grew by +.3% for August and are up +5.2% over the trailing 12 months. Those are both robust numbers and indicative of a tight labor market, but they both are .10% below estimates.
Conclusion: The good news is that the unemployment rate went up a little and wage growth was less than expected. That sounds strange but the market is looking for labor weakness and wage weakness to start taking place. “Bad” now equals “good”. That’s why SP500 futures are up modestly this morning after the report and why the front end of the UST yield curve is down a little in terms of yields. The bad news is that there is nothing in this labor report that will stop the Fed from hiking rates 75bps at their September meeting. Not enough labor demand has been destroyed yet. That’s going to take a few more months. The timing of a weak/soft/negative labor report will coincide with the Fed’s moment of “pausing”. That’s unlikely to happen prior to November.
Chief Investment Officer
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