Job Summary: Sifting through last week’s key data
- Taking the market into a handful of labor market metrics
- While the data is mixed, overall it shows a still healthy picture
- CPI report in the spotlight
All eyes remain on how hot the job market is and what happens with inflation. We’ll get the August report on September 13th, but the market just absorbed a round of recent employment readings that have been a mixed bag. Amid a “bad news is good news” environment, job numbers can be interpreted in more than one way.
The data barrage began with the numbers of jobs and employment turnover () on Tuesday morning. The BLS confirmed that total openings were up from June at 11.24 million as of the last working day in July, well above the consensus forecast of 11.0 million. This was a hot number that caused a modest drop in Treasury futures contracts that should only accelerate into the next day.
Job Opportunities Climb Up Unexpectedly From Late July
Source: Trading Economics
Next to the board was the newly revised version of the report on Wednesday morning. This was a disappointing data point that the market quickly looked at in the past. The payroll processing company reported that 132,000 private sector jobs were added last month, a slowdown from July’s gain of 268,000 jobs. Market forecast +300,000.
What was worrisome in the data was an inflationary 7.6% increase in annual wages according to ADP Pay Insights (including a massive +16.1% year-over-year pay increase for those who left jobs). ADP is known for volatility and is often a poor indicator of what the next Friday report will show. Furthermore, this was the first release of the ADP since May as the company paused the report due to the company’s ongoing partnership this summer.
ADP: slowdown in monthly private salary increase
Claims data crossed the wires Thursday morning as usual. Verified at 232000 for the week ending August 27 which is weaker than market expectations of 248000. This was also a two month low as there are some specific signs that the broad labor market is cooling rapidly. It continued to fall even as initial claims rose – a potential sign that workers are quickly finding new work after being laid off. Within the report’s details, there was another unsettled number of wage growth — unit labor costs rose to 9.3% over the past four quarters, the highest rate since the first quarter of 1982.
Higher unit labor costs
Source: Federal Reserve in St. Louis
Finally, the August mac-daddy Nonfarm Payrolls report came in about where economists had expected. Employment rose 315,000 last month with a 0.2 percentage point rise as more people returned to the workforce. The news on the wage front this time around was that average hourly earnings rose just 5.2% from last year’s levels, slightly lower than economists had expected. It was also under expectations. The Labor Department report was considered positive because job growth wasn’t too high, but wage growth waned. The labor force participation rate has jumped above pre-pandemic highs – another good sign.
Healthy job gains, wage growth cooling, big LFPR increase
The job market continues to operate strongly. This is contrary to what Chairman Powell and the rest of the FOMC want to see. They want the pain – meaning a higher unemployment rate and slower wage growth until inflation subsides. In the midst of a week when the holidays get short, there isn’t a lot of key data. All eyes now turn to the CPI report for August which will be released a week later on Tuesday.
The three weeks following the data
Source: Bank of America Global Research
Disclaimer: Mike Zaccardi does not own any of the securities mentioned in this article.