The US labor market has spooked the Federal Reserve, Wall Street, and market analysts. But are these fears unfounded, or is there a cause for concern? The United States might receive an answer to this question when the Bureau of Labor Statistics releases the August jobs report on Sept. 5. While the monthly non-farm payrolls report will be the main event of a busy post-Labor Day week, there are other data sets to complement the bureau’s widely watched employment numbers.
Previewing Labor Market Data
Will August be a repeat of July? The White House hopes not, but investors hope so, as it will effectively greenlight an interest rate cut.
Early estimates suggest that the US economy added an anemic 75,000 new jobs last month, slightly higher than the worse-than-expected 73,000 in July. The unemployment rate is expected to tick up to 4.3% from 4.2%. Average nominal (non-inflation-adjusted) hourly earnings are projected to slow. Of course, all eyes will be on the bottom of the federal agency’s report to determine whether there will be revisions galore.
To paraphrase Federal Reserve Chair Jerome Powell, it is about the totality of the data, meaning that there are other measurements to monitor to gauge the economy’s health.
The Institute for Supply Management's Purchasing Managers' Index (PMI), a monthly gauge of the manufacturing sector's prevailing economic direction, will offer insight into employment conditions. The Job Openings and Labor Turnover Survey (JOLTS) will examine the number of unfilled job vacancies across the US labor market. Payroll processor ADP will report on job growth in the private sector, while global outplacement firm Challenger will highlight planned job cuts.
Suffice it to say, this week’s jobs report will prove pivotal for the US central bank, consequential for the current administration, and perhaps bullish for the New York Stock Exchange.
Here We Go Again
In September 2024, the Federal Reserve initiated its easing campaign with a substantial half-point cut to the benchmark and highly influential federal funds rate, which is currently targeted in a range of 4.25% to 4.5%. A year later, the US central bank could restart this crusade with a more modest quarter-point reduction.
Two monitors – the CME FedWatch Tool and the Atlanta Fed’s Market Probability Tracker – suggest that investors overwhelmingly expect Powell and Co. to lower interest rates at this month’s Federal Open Market Committee (FOMC) policy meeting, although this could change come Sept. 5.
In his final keynote address at the central bank’s annual Jackson Hole retreat, Powell called the present labor conditions “curious”:
“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
Despite the central bank chief and his colleagues warning that tariff-driven inflation is appearing in the US economy, the messaging, no matter how mixed, seems to be an emphasis on the “maximum employment” side of the institution’s dual mandate. “Price stability” is the other one. But Fed Governor Christopher Waller and Fed Vice Chair of Supervision Michelle Bowman, two of President Trump’s appointees, have been sounding the alarm for months.
In post-meeting statements last month, Waller and Bowman defended their dissenting opinions at the July FOMC meeting. Bowman described the labor market as “less dynamic” and has shown “increasing signs of fragility.” Waller, meanwhile, says the job situation appears fine on the surface, but “once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased.”
What about inflation? This is the $64,000 question.
Bowman and Waller assert that tariffs create a one-time price adjustment, and Fed officials believe this is the likely base scenario. At the same time, Powell warned in his Jackson Hole speech that risks of levy-fueled persistent inflation are also a realistic possibility. “Come what may, we will not allow a one-time increase in the price level to become an ongoing inflation problem,” he said.
Inflationary pressures have risen modestly, and early forecasts for the upcoming batch – the consumer price index (CPI), the producer price index (PPI), and import prices – suggest a tepid increase or little change. For now, if the Fed cuts rates, it will send the message that it is willing to live with slightly higher inflation while ensuring Americans keep their jobs.
The Wild Card: Revisions
Ultimately, the wild card will be downward revisions – something Liberty Nation News has reported on for the last few years. If the Bureau of Labor Statistics reports even more downward adjustments to the figures from July and previous months, traders will likely ignore a better-than-expected August print, concluding that it will be adjusted lower in the next few months. While the narrative in the mainstream media is that a new bureau chief will fudge the numbers to make the Trump economy look better than it is, their own words clash with this fear.
On the one hand, CNN and MSNBC analysts argue that the head of the federal agency is not responsible for compiling the report and issuing the final number. On the other hand, these same individuals warn that a Trump appointee will compile the data and issue the final number.
Which is it?
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