The published BLS report for August showed several factors confirming the easing of tension in the labor market, which the Fed is stubbornly seeking.
Firstly, although the overall increase in jobs in August (187K) slightly exceeded the consensus forecast (170K), the data for the previous 2 months were revised downward by a total of 110K (July - from 187K to 157K, June – from 185K to 105K). For 3 months, the growth of jobs in the non-agricultural sector of the United States has been below 200K, and significantly below the average for the last 12 months of 271K. Secondly, the unemployment rate unexpectedly increased from 3.5% to 3.8%, remaining very low compared to the historical trend. Thirdly, the growth of the average hourly wage slowed down to a minimum of 0.2% MoM in 1.5 years, below the consensus forecast of 0.3% MoM (however, these data cannot be considered final, because they are subsequently revised). Finally, the level of participation of the population in the labor force (participation rate), which has not changed since March, has increased to the maximum since the beginning of the covid pandemic – 62.8%, the labor force is growing, including due to the return of those who previously left it, and now are working or actively looking for work.
Together with other data released this week – for example, a reduction in the number of open vacancies in July to a minimum since March 2021 (significantly lower than forecast), a decrease in the ratio of the number of vacancies to the number of unemployed to 1.51 (minimum since September 2021), an increase in the number of layoffs in American companies by more than 3 times – data The BLS confirms that the labor market is gradually reducing the imbalance of supply and demand of employees, which is what the Fed is seeking, considering it a necessary condition for a steady approach of inflation to the goal. Nevertheless, the return to a balanced labor market, as it used to be seen before the pandemic, is still quite far away.
However, the restrained job growth in August could also be affected by temporary technical factors that were already taken into account by the market. In particular, this is a strike of artists in Hollywood and the filing of a Chapter 11 bankruptcy application by Yellow Trucking in early August, as a result of which about 30,000 workers remained unemployed (which could affect the reduction in the number of workers in the transport sector).
This is the last major block of data on the US labor market before the Fed meeting on September 19-20, inflation data will still be released. In the meantime, the data confirm a very high probability, at least, of the Fed's pause at the September meeting and increase the likelihood that the current interest rate level (5.25-5.5%), a record for 22 years, can be assessed by the US central bank as already restrictive enough to complete the cycle of increases and keep the rate at the current level for some time before the transition to reduction. However, the stability of household consumption growth and the stability of core inflation, especially in the service sector, do not yet give an unambiguous answer to the question of whether the terminal level of the interest rate has been reached. Meanwhile, the futures market has overestimated the probability of a pause in September to 93% from 88% the day before, keeping the rate at the current level at the November and December meetings is estimated by the market as the main scenario with a probability above 60% (margin increase compared to yesterday). In general, the reaction of the markets to the data can be assessed as intermediate between weakly positive and neutral.
Job growth in August was 187K, exceeding the consensus forecast (170K). The indicators for the previous 2 months were revised downwards by a total of 110K - for July – from 187K to 157K, for June – from 185K to 105K. For 3 months, the growth of jobs in the non-agricultural sector of the United States has been below 200K, and significantly below the average for the last 12 months of 271K. Nevertheless, this is still significantly higher than the 100 thousand per month, which Powell called as the optimal job growth to balance with the growth of the working-age population.
The strongest growth in August was given by healthcare and social assistance (+97.3 thousand), hotel business and entertainment (+40 thousand), construction (+22 thousand), professional and business services (+19 thousand), industry (+16 thousand). The reduction of jobs is noted in the transport and warehouse industry (-34.2 thousand), the information industry (-15 thousand), among temporary workers (-18.9 thousand, and since the peak in March last year, their number has decreased by 242 thousand).
The unemployment rate unexpectedly rose to 3.8% (the maximum since February 2022) from 3.5% in July (close to the minimum in more than half a century), the market did not expect an increase. These data are determined by the BLS based on another survey – not of companies, but of households. At the same time, according to a survey of households, the number of the labor force increased by 736 thousand (the number of employed increased by 222 thousand, the number of unemployed - by 514 thousand), the participation rate, which has stagnated since March by 62.6%, unexpectedly increased to 62.8% (maximum since February 2020 G., but below the pre-pandemic 63.3%). This means that the supply of labor has at least slightly increased (with a slowdown in the growth of demand for it). The increase in the number of unemployed (they include actively looking for work) is mainly due to an increase in the number of those who lost their jobs or completed work under a temporary contract (their number increased by 294 thousand).
The growth of the average hourly wage slowed to a minimum in 1.5 years (+0.2% MoM, against +0.4% MoM in July, the consensus forecast assumed a slowdown to 0.3% mom. In annual terms, wage growth also slowed to 4.3% from 4.4% in July, the market expected to maintain the July pace (4.4%). Nevertheless, the growth rate of wages is still much higher than the pre-pandemic values (on average 2.8%).
The JOLTS report released earlier this week for July showed that the number of open vacancies fell to the lowest since March 2021 (8.8 million against 9.16 million a month earlier and below the consensus forecast of 9.47 million). The ratio of the number of vacancies to the number of job seekers decreased to the lowest since September 2021, 1.51 (earlier Powell said that the indicator was overheated and should return to the pre-pandemic 1-1.2). In the spring of 2022, it reached 2.0, at the beginning of this year about 1.8.
In the context of slowing hiring growth and accelerating the growth of layoffs by companies (according to the recruiting company Challenger, Gray & Christmas, American companies in August announced a reduction in the number of jobs by 75.1 thousand, which is almost 3.2 times higher than last month and 3.7 times the figure for the same month of 2022, and in general, in January-August, the companies announced plans to reduce 557 thousand. employees, which is 3.1 times more than in the same period a year earlier and the third largest since 2009), employees began to avoid layoffs on their own initiative, realizing that it would be more difficult to find a new job. The labor force is growing both due to the influx of new people into the labor market, and the return of those who previously dropped out of the labor force (employed and actively looking for work) and now want to work again.
The overall picture of the labor market suggests that the Fed's strategy is working – the imbalance between excessive demand and insufficient supply is decreasing. And this, all other things being equal, increases the chances of completing the cycle of an aggressive Fed rate hike and a relatively "soft landing" of the American economy.
