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Throughout this week, we’ve seen a variety of charts showing a deteriorating labor market.
Job openings in July fell to the lowest level since January 2021, according to JOLTS data on Wednesday.
Thursday’s ADP data showed the monthly growth rate in private employment was also the lowest since 2021.
The story these graphs tell is clear. The labor market is cooling, which is enough to cause market anxiety.
On Friday morning, a crucial update was released in the long-awaited August jobs report, the benchmark by which the labor market is measured. And it wasn’t conclusive.
As this week’s chart shows, we have answered only one of the two important questions the market has been asking.
The first is whether the labor market, which got a little too hot in July and was heading for a landing, is collapsing. it’s not. After a July that recorded an unemployment rate of 4.3% under Therm rules, August data shows that the plane has come out of a turbulent mini-dive and leveled out at a level of 4.2%.
In line with standard airline industry metaphors, economists’ reactions point out that hopes for a soft landing remain strong.
But as Nick Bunker, director of economic research at Indeed Hiring Lab, wrote in a Friday morning note, “the current pace is approaching stall speed,” in the past two print editions in June and July. The number of hires has been revised downward. This did not fall short of expectations for more robust growth of 165,000 jobs.
These revisions and negativity could add further uncertainty to markets that believe the Fed is uncomfortably slow to cut rates, but economists continued to point out direction in their commentary. Although the labor market hasn’t improved much, some say there aren’t enough stumbling blocks to force a 50 basis point rate cut (the larger of the two options) at the Fed’s September meeting.
For an employment report that was supposed to answer this question, this may not be satisfactory. But months of waiting for details about the next rate cut have turned into years.
And now that it has been confirmed that the plane is not yet trying to break the landing gear, investors can wait a little longer. As Julie Hyman wrote earlier this week, if a 50 basis point rate cut is the same as telling the Fed, “Okay, the economy is starting to make us nervous,” then that’s welcome. It is not even clear whether it will be done. The economy wants lower interest rates.
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