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Macro Developments Since The Jul FOMC: Employment (1/2)

US
  • The combination of the two payrolls reports since the Jul FOMC left an open debate between a 50bp and 75bp hike for the Sept meeting: not strong enough to warrant 75bp in their own right but equally too solid to justify a more dovish pivot (Aug released Sep 2).
  • Strong payrolls growth lent support to evidence that the US isn’t already in a recession, adding a rapid 841k jobs in two months and closing the gap to pre-pandemic levels of employment, albeit still notably below in population-adjusted terms.
  • However, after signs of a stalling in the recovery of labor supply, including in the July report, participation surged higher in August from year-to-date lows to highs, in turn surprisingly pushing the u/e rate up two tenths to 3.7%.
  • It wasn’t a drastic move, coming off joint record lows and where the median FOMC member expects the rate to sit at in Q4, but a larger increase in underemployment and a further drift higher in socio-demographic u/e rate gaps pointed to a modest easing in labor market tightness despite a record 2 job openings for every unemployed.
  • Similarly, there was a modest cooling in average hourly earnings growth to a still strong 0.3% M/M, although the Fed is probably more focused on metrics with fewer compositional issues such as the ECI.
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  • The combination of the two payrolls reports since the Jul FOMC left an open debate between a 50bp and 75bp hike for the Sept meeting: not strong enough to warrant 75bp in their own right but equally too solid to justify a more dovish pivot (Aug released Sep 2).
  • Strong payrolls growth lent support to evidence that the US isn’t already in a recession, adding a rapid 841k jobs in two months and closing the gap to pre-pandemic levels of employment, albeit still notably below in population-adjusted terms.
  • However, after signs of a stalling in the recovery of labor supply, including in the July report, participation surged higher in August from year-to-date lows to highs, in turn surprisingly pushing the u/e rate up two tenths to 3.7%.
  • It wasn’t a drastic move, coming off joint record lows and where the median FOMC member expects the rate to sit at in Q4, but a larger increase in underemployment and a further drift higher in socio-demographic u/e rate gaps pointed to a modest easing in labor market tightness despite a record 2 job openings for every unemployed.
  • Similarly, there was a modest cooling in average hourly earnings growth to a still strong 0.3% M/M, although the Fed is probably more focused on metrics with fewer compositional issues such as the ECI.