Jobs Week has cleared the skies for members of the Federal Reserve Board, and they are smiling after a series of data lines gives them what they wanted: a softer labor market—very happy!
The labor market hasn’t collapsed, but it has become more flexible in the data lines the Fed focuses on. After Friday’s jobs report, which had some temporary volatility, the economy is heading into a more comfortable zone for the Fed, which should not raise rates further.
To get a better understanding of the labor market, we need to focus on this week’s data. Let’s start with Friday’s employment report.
from BLS: The U.S. Bureau of Labor Statistics announced today that nonfarm payrolls rose by a total of 187,000 in August, while the unemployment rate rose to 3.8%. Employment in the health care, leisure and hospitality, social assistance and construction sectors continues to grow.Decrease in employment in transportation and warehousing.
Headline numbers beat expectations, but there was a negative revision last month. The labor force grew significantly, which was the main reason for the rise in unemployment. As a trucking company, there were also some temporary variables. filing for bankruptcy, and an actor strike that hit the data this month. Here’s a breakdown of jobs gained and jobs lost:
In this employment report, the unemployment rate by education level is:
- Below high school diploma: 5.4% from 5.2%
- If you graduated from high school and did not attend college: 3.8% from 3.4%
- University or associate degree: 3.0%
- Bachelor’s degree or above: 2.2% from 2.0%.
The key to the surge in unemployment was the large migration of labor, especially from the elderly 55 further in this report.
The Fed’s concern that wages would surge out of control, as it did in the 1970s, was not a valid concern. As inflation growth fades, so should people’s fears about this problem. Wage growth has slowed since January 2022. It may still be too hot for the Federal Reserve, but anyone who’s not blind will know it hasn’t spiraled out of control. As the graph below shows, average hourly wage growth data is slowing from high levels.
Job Information
Jobs data is one of the Fed’s favorite labor market indicators and is used to tell how tight the labor market is. I think the Fed members want their jobs data back. 7 million So they must be very happy with the following job opening numbers 9 million this week. As you can see from the chart below, the labor market is not as tight as it used to be.
Turnover
Another great data line this week for the Fed is that turnover has returned to pre-coronavirus levels. The Fed is very happy that fewer people are leaving for higher-paying jobs, especially in the low-paying service sector. Because the Fed will not allow people to make more money at lower wages. As Fed members recently said, they want a softer service sector workforce.
It’s been a great hiring week as the Fed is really making headway in its attack on the labor market. Once you get a hold of labor trends, it’s hard to reverse course quickly, especially since the Fed is in a restrictive area with regards to interest rates. Remember, student loan debt payments will soon be online, meaning less disposable income in the economy. The 10-year yield is just below my 2023 peak forecast of 4.25% and is currently at 4.18%.
Over the next 12 months, the highlights will be the Fed keeping interest rates in the restrictive territory, student loan repayments about to resume, and tighter labor markets easing. It’s safe to say that the Fed members are happy about this week. They are very excited that the economy has many variables that will attack the labor market.
