Evening Brief – 09.01.23
US Payrolls Rise 187K, Unemployment Rate Jumps
US job growth continued at a moderate pace in August while the unemployment rate unexpectedly jumped, indicating that the labor market is finally cooling in the face of rising interest rates and persistent inflation.
The Bureau of Labor Statistics reported that nonfarm payrolls rose by 187,000, while the unemployment rate ticked up to 3.8% from 3.5% in July. Employment in health care, leisure and hospitality, social assistance, and construction has continued to rise, while transportation and warehousing employment have decreased.
The June jobs data was revised downward by 80,000, from +185,000 to +105,000, while the July change was reduced by 30,000, from +187,000 to +157,000. With these adjustments, June and July employment totaled 110,000 fewer than previously reported.
The increase in the unemployment rate was mostly due to an increase in labor force participation from 62.6% to 62.8%. That is the highest level since the pandemic and the first time since Covid that we have higher labor participation rates than we had for most of 2018.
Furthermore, wage inflation, as measured by the change in average hourly earnings, fell to 4.3% from 4.4%. Average hours increased somewhat, to 34.4, which is encouraging but still far lower than what we saw in 2021 and early 2022.
A broader measure of unemployment that includes discouraged workers as well as those working part-time for economic reasons increased by 0.4 percentage point to 7.1%, the highest level since May 2022.
The jobs report should not worry Federal Reserve Chair Jay Powell too much, and it was sufficient that we do not need to price in recession risk just yet. The data should help US Treasury yields continue to fall (the 10-year yield was roughly 20 basis points lower this week), pushing the equity markets higher.
The slowdown in hiring, along with the rise in unemployment and slowing wage growth, will almost certainly provide the Federal Reserve with reason to end its rate-hike campaign in September, and maybe November.
As for Fed rate hike odds: The probability of a hike in September fell to just 7% after the latest jobs data, according to the CME Group’s FedWatch Tool, compared with 12%. Expectations of a November rate increase dropped to 36% from 42% prior to the release.
Evening Brief: Nonfarm payrolls for August rose by 187,000, while the unemployment rate ticked up to 3.8% from 3.5% in July…