Labor pains continue

Labor data for August continued to languish with payroll gains missing to the downside and the unemployment rate ticking up. On the bright side, net revisions for the prior two months was only -21k (compared to -258k in the previous print), but overall, this was another soft set of data from the labor market. Out of the 14 industries listed, nine experienced net job losses in August. As usual, healthcare and private education hiring led the way, adding 46k jobs, but this was the lowest total for this category since December 2022. Data on job openings earlier this week indicates that job openings in healthcare and private education has plummeted in recent months, a sign that demand for those jobs are waning, which is ominous for future payroll gains. Average hourly earnings and average hours worked were both steady in August. This is consistent with our view that businesses are likely to continue utilizing the staff they currently have and will be reluctant to lay off workers but will also be reluctant to expand any time soon. This dynamic, combined with a stable labor force participation and slower immigration will lead to fewer job gains, but also help to keep a ceiling on the unemployment rate, despite the slowing economy. The baseline expectation of a 25bp Fed cut was pretty data insensitive and today’s data should not change the narrative. We had thought it would take a scary print today – payrolls close to zero and a jump in the unemployment rate - to put a 50bp cut on the table. This print is far from strong, but not weak enough to abandon concerns about inflation. What today’s data could change is the voting contours of the September meeting. The hawks who were inclined to advocate for no cuts until tariff clarity emerges will be more likely to take labor concerns more seriously, but that will also depend on CPI coming out next week.