Fed should like the tepid jobs report

Continuing the ebb and flow of economic data, last week saw some of each. 

The August employment report was right in line with expectations, as 187,000 new jobs were added, up from a downwardly revised 157,000 in July. Because more people entered the labor force, the unemployment rate actually increased, from 3.5% to 3.8%. Average hourly earnings rose 0.2% in August and 4.3% over the last year, a slight easing from prior months. The pace of job gains is clearly slowing, averaging 236,000 per month in 2023, but only 150,000 over the last three months. The market expectation for further Fed rate hikes eased lower after the report. Confirming this softening economic trend was the Conference Board consumer confidence survey, which showed consumers less confident in August, concerned about both the present situation and the future. On average, respondents see the labor market a little less rosy, as the percentage of “jobs plentiful” minus “jobs hard to get” fell to the lowest reading since April 2021. Weekly jobless claims fell from 232,000 to 228,000.

Throwing a little sand into the works was the ISM manufacturing survey, which rose from 46.4 to 47.6. It remains in contractionary territory, but improved on higher prices paid, production and employment. The personal consumption expenditure measure (PCE), the Fed’s preferred inflation gauge, rose 0.2% in July. But its core measure has climbed from 4.1% to 4.2% over the last year. The stubbornness of this data gets a great deal of Fed scrutiny and discussion, and probably allow it to pass on rate action at its September FOMC meeting. But, there’s always more data around the corner.