As if on cue to allow everyone to enjoy the last few weeks of summer, today’s labor report was mostly a snoozefest that came in very close to the official estimate with a gain of 187k jobs vs. 200k expected. While that’s technically considered a slight miss, it’s still a healthy rate of job growth at this point in the cycle considering that the Federal Reserve has raised interest rates by 525 basis points in the past 15 months. If we look at the 6-month moving average in payroll gains (green line below), which helps to smooth out some of the noise from the monthly numbers, we can see a gradual decline from a very elevated & unsustainable pace in the immediate aftermath of the pandemic a couple of years ago to a little more than a 200k pace now. This is reflective of an economy that is shifting to a lower but still quite solid rate of jobs growth. In other words, there is still no sign of recession apparent in the labor market yet.
If there was a fly in the ointment, it was that wage gains came in a tick higher than expected at a 0.4% monthly increase, which translates to a 4.4% annual rate. This is certainly good news for consumers from an inflation-adjusted standpoint – with CPI falling to 3%, they’re now getting a welcome income boost in “real” terms. But it’s still too high for the Fed’s liking given their concern about the potential for a wage-price spiral. There is anecdotal evidence in certain industries that labor has been able to extract rather large wage increases recently, which is something that the Fed will be monitoring closely. In addition, the unemployment rate decreased back to its recent low of 3.5%, whereas the Fed is anticipating a modest increase by the end of the year, which they believe is a necessary precondition for inflation to continue to recede back towards their longer-run 2% goal. Whether or not the unemployment rate does rise during the second half of the year, we believe that most signs point to inflation continuing to moderate from here.
We’ll do it all again next month, with the August employment report appropriately scheduled for just prior to the Labor Day holiday.
Monthly Change in Payrolls (black) with 6-month Moving Average (green)
Sources: Bloomberg, Bureau of Labor Statistics, as of 8/4/23
Carl Noble, CFA®
Senior Vice President of Investments
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. For additional information, please visit our website at congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.