Jobs report weak, but not troubling

The question for the markets after Labor Day was not whether the Federal Reserve would cut its federal funds rate at its next meeting on Sept. 18, but by how much.

With the Fed clearly shifting its focus to the employment part of its dual mandate, and away from the inflation component as it continues to moderate, markets viewed the August employment report as the barometer for rate action. In keeping with how the economic data has informed lately, the report had something for everyone. 

Nonfarm payrolls rose 142,000 in August, even as the prior two months saw downward revisions totaling 86,000 jobs. The unemployment rate fell from 4.3% to 4.2%, and average hourly earnings rose 0.4% in August, twice the rate in July, and 3.8% over the last year, up from the 3.6% rate in July. Average weekly hours worked increased 0.3%, and the labor participation rate held steady at 62.7%. Combined with weekly jobless claims that fell from 232,000 to 227,000 in the last week, these reports do not paint a picture of a troubled labor market.

Other data released last week point to an economy that continues to lumber on. Two surveys of manufacturing activity produced results in-line or better than expected, and two surveys of the services sectors came in better than expected.

Market focus now shifts to inflation, retail sales and consumer sentiment surveys—the last economic data points before the Federal Open Market Committee meeting. The magnitude of the likely rate hike will get the press, but perhaps more important will be the updated Summary of Economic Projections and the tone of Chair Powell’s press conference.