Benchmark Special: Five Questions From the August Jobs Report

thanks for having me. So, payrolls gained a hundred and fifty one thousand in August, slightly less than forecast, while wage growth moderated and other measures of slack held set. We thought we'd talked about five questions that this report raises for the economy and the federal reserve. Dan, do you want to go with number one? Gina? This number keeps alive expectations for a federal reserve rate increase this year. But what does it due to the September versus December

guessing going? I think really at its core, what this number does is it doesn't pass their hurdle rate for September. So I was talking to Rebert Apparely, who's an economist Tier in Washington earlier today, and he summed it up pretty well. He said, you know, for a dove, this doesn't change your mind. For hawk, this doesn't change your mind. If you wanted to go in September, you still want to go in September. If you didn't want to go

in September, you still don't. But what we've seen so far this year is the doves have been carrying it. So it could be the case that, you know, this means that in September they're going to carry it again and we're not going to see a rate increase. And Roberto Pearly used to work at the federal so yes, he did, so he has some definite insight. Some people are saying that on the margins, this could it goes

both ways. It could cut stronger both ways. Some people are saying this cements the idea that they don't move in September and that they wait till September if they have enough ammunition for that. And then, you know, it's kind of surprised to see Goldman Sachs economist John Hatzi is talking about how this actually raises the chances of

a September increase. They've said it's probability now up from you know, the report was good enough, and as Janet Yellen said last week, they're just really looking for data that continue to confirm their outlook rather than change it. Yeah, and I think it's an important point, Scott, Like you said, you know, Jan's projection is for chance of a rate increase.

I think what we've seen across the board is none of our economists are moving September who originally thought September are moving September off of their charts in a really significant way. You know. The ones who are shifting to December are saying, you know, it's still a pretty narrow confidence range. You know, we we still think that there's like a good chance they go in September, but we think this slightly shifts things towards December. Gina helped me

with an issue I'm wrestling with. If they hauld in September, but the projections released simultaneously continue to show at least one dot for twenties sixteen that can only leave December. So haven't they pre announced without doing it? Do they get the worst of both worlds? It does kind of mean they pre announced. I mean, theoretically they have one more meeting in between September and December, and they could

hike then. But we know that a lot of people speculate that they would never want to hike during a meeting when they don't have a press conference following it, um just because that might Royal markets. But yeah, it does. It does kind of equate to pre announcing. The question there though, I think, is, you know, does it actually matter for the FT if they pre announced, Like are they going to be really really hesitant to do that?

And I don't know if it does so much because they we what we know about the FT is they really take advantage of the speeches they give the public to communicate with markets. They know that people watch them. They're a where that they're constantly in the limelight, and so I think that they feel like even if they pre announced, if the situation dramatically changes, they can use the chair speeches, the vice chair speeches, the president's speeches

to communicate that the situation is changed. All right, we shall see now. Number two, what about this pace of payrolls. You had a hundred and fifty one thousand being at it. That was down from the average pace of the previous two months. Of two hundred and seventy three thousand seems like quite a drop, but there's there's a sense that a hundred and fifty or so is still a pretty good pace for the economy. Does this mean that we're settling into a good groove here or that things are

falling further into a rut. This seems like the biggest question out of this Peril's report to me, at least um It is a downshift from what we saw the prior to months, and it might signal that those two months weren't a sustainable pace of growth for the labor market. What we've seen from a lot of economists is a speculation that as we near full employment, we're going to settle into something more like one hundred thousand, one hifty thousand,

you know, path for employment games going forward. So the real question is is this the beginning of that? Is it's the leading edge of this full employment job gains slow down? Jane. For all that the headline number disappointed some economists, when you take a step, isn't it remarkable how steady job creation the United States has been since this expansion began in two thousand and nine, Compared with

other major economies. Yeah, you know, that is a good point. Um. We we've had some blips, obviously, you can look at me and see that, but overall we've seen a really solid pace of job gains. And one fifty thousand is by no means a bad number. You know. John Williams at the San Francisco Fed estimates that anywhere between eighty and a hundred thousand jobs at it a month would keep unemployment pretty much stable or even declining. Um. And so I think you need to do need to take

these numbers into context. You know, on fifty thousand might not be what the Bloomberg consensus was looking for, but it's it's by no means a bad number. Yeah. And when you hear yeah, when you hear people saying that e D is okay, you know, the only question is if it goes down more and keeps going down, it could be a problem. But right now that kind of level probably doesn't concern the FED or people in the broader economy at all. Okay, let's go to number three. White.

So one of the things that I think definitely hook some shine off of what's not actually a terrible headline number is the fact that we didn't see wages pick up, and we actually saw them sort of backtread a little bit. Um. We saw some pretty soft both month over month and year over year readings, and that's bad news for the FED because they've been hoping that as the labor market titans and a seles eaten up, what we're going to see is that come through two wages, like stronger wage gains.

Employers are working harder to find people and so their hiking pay um because that can be a sort of a leading edge for inflation, which is what the FED really needs to see at this point. So I think if there's one most negative thing about this report, it is probably that wage number. Yeah, and it was a

pretty significant drop. You had it going from a two point seven year over year increase in July to a two point four percent increase in in August, and we haven't seen a decrease of that magnitude in more than a year. The number of hours people work during the week also unexpectedly fell to the lowest level in more

than two years. And you know, there could be some seasonal issues like this, but but this is definitely not the direction that people at the FED or wherever or anywhere I want to see wages going in because the whole idea is, as the perils get stronger than the wages should be picking up at a faster pace exactly.

And the really worrying thing about this is, you know, there could have been some sort of seasonal effects, especially because a lot of automakers retool in July and we didn't see the kind of layoffs they normally have, so that might have affected the hours numbers. They might have looked stronger in July because of that, and then the seasonal adjustment may have made them look weaker in August. But the issue here is that that dropping hours and

the dropping wages was really broad based. So if you look across industries, we saw it everywhere, um and that sort of counters this whole seasonal adjustment or data cork idea. So one thing to keep in mind. As our colleague Michelle jam Risco spoke with the economists Stephen Stanley about he likes to flag the idea that you know, everybody's marked down their estimates of what the the economy can grow at, you know, and where the federal funds rate

should be. Why don't they just mark down their estimates of how fast wage growth is going to be. People have it in their minds that wages should be able to grow three percent in this kind of economy, and we're only seeing gains a little a little over two percent. So are we really in a new normal that people should be aware of. Yeah, And I think one thing to keep in mind is we're seeing really really tepid productivity growth. It's hard to support wage growth if you

don't have to productivity growth. All right, Well, let's go on to number four. The labor force participation rate that actually held at sixty two point eight percent in August, still seems to be plateau ing at a much lower level than it was before the financial crisis. What's going on here, Gina? Yeah, So it's it's interesting that the participation rate isn't moving up, it's not moving down. It

seems to be holding pretty steady. I think that's actually probably the best case scenario for if you're hoping for a FED rate hike sometimes soon, because what it basically says is, you know, the labor might strong enough to keep this measure of slack steady. You know, we're not having people get discouraged and just drop out entirely. But at the same time, people who are sitting on the

test sidelines aren't coming back in anymore. You know, they're probably out for some other sort of reason aside from slack, maybe demographics, maybe something structural, like their skills are completely outdated, but can't you know, can't be pulled back in. But regardless, what it means is they're not a source of slack to be absorbed anymore. So I think I think for a rate hike, that's a pretty pretty clear signal and lastly, broader economic implications. This was not the only major number

reported in the United States this week. We had disappointing manufacturing numbers the day before. Now, look, Gina, why does this matter? Manufacturing has been a ever retreating portion of the world's largest economy, and manufacturing jobs didn't do well in this report. Why do we care? We care because manufacturing can be sort of a bell weather indicator for

the rest of the economy. It's a good gauge of whether there's demand, whether there's corporate investment, um just sort of a good broad based game indication that things are about to pick up or things are about to slow down. And what we're seeing is you know, I s M. The manufacturing index slowed down quite a bit, and we weren't sure whether that was a one off. We weren't sure whether that's something that's going to be sustained or

you know, it was just a data quirk. And what this report today showed us is that manufacturing definitely slowed down in payrolls as well. So it sort of confirms that crummy I s M number. Um. So again, it's only a couple of data points. We're gonna have to wait to see if this is a trend, but it's something to be worried about. Gina. Let's have you back next time we do a bonus economic episode. Thank you well, Thanks, thanks a lot, thanks to Dan, thanks to Gina. Benchmark

will be back with our regular episode this weekend. Until then, you can find us on the Bloomberg Terminal and Bloomberg dot com. This l us on iTunes, pocket casts, and Stitcher. You can talk to us and follow us on Twitter. Gina is at at Gina Smile Like, and I'm at at Scott Landman, and I'm at at Daniel Moss d C. See you next time.