Market Pulse: September 2, 2024

The August jobs data is due out at the end of the week. Good, bad, or indifferent, it will be a big deal. Fed Chair Powell highlighted the labor market at the top of his speech in Jackson Hole and as such then report will have significant implications for how Powell guides policy at the September FOMC meeting. Powell’s concern about the labor market is not in question, he noted that the “cooling in labor market conditions is unmistakable” and as a result, “downside risks to employment have increased.” The trend in the labor market is clear, as noted, it is unmistakably cooling. For instance:

*The JOLTS report on Hires and Separations indicates a clear reduction in the dynamic churn of labor market activity. Hiring and Separations, which includes Quits, are well-below their post-pandemic peak set in early 2022; down 22.2% and 18.6%, respectively.

*Nonfarm payrolls remain solidly positive, but less so. The 6-month average for payrolls is +194k, which is not too bad. But this average was at +240k a year ago and the post-pandemic peak was way up at 692k. And, of course, the entire payrolls story took a hit recently when the 12-month total, up to March 2024, was reduced by 818k when the BLS announced its annual benchmark revision.

*The Unemployment Rate is nine tenths above the cycle low. Not that past performance is indicative of future results, but, in the last six decades this has been the moment of the cycle that sees the Rate accelerate higher, every time that has been the case; no pause or retracement, just an acceleration. However, the argument can be made that the jobless rate is up because of new entrants into the Civilian Labor Force (CLF) and not because of people losing their jobs. But there is a dark side in that telling. The Household Survey is where this data can be found, In the last year the CLF is up 1.316 million, or +0.8% year on year. During that time the number of Employed is up just 57k, rounded to 0.0% on the year and the number of Unemployed is higher by 1.259 million, up 21.3% on the year. So, it can be said that Employment is not on the decline, but it can also be said that only four percent of the new entrants into the CLF have been rewarded with a job in the last twelve months, and that is sort of faint praise, don’t you think?

Perilous or not, the labor data is cooling; unmistakable. I don’t know what the July JOLTS or August jobs data will show this week, but the trend is clear, and the likelihood is that over the medium term the trend will continue; Powell said the downside risks have increased. And I think it can be said, from his Jackson Hole appearance, his policy patience is limited, “We do not seek or welcome further cooling in labor market conditions.” But, to hope for something other than that is certainly counter to what the current trends are clearly showing. Therefore, it seems to me that the bar is set high for labor market data, probably too high to clear.