Payrolls Report A Necessary But Insufficient Step Toward 75bp In Sept (2/2)

From a broad economic perspective, the payrolls report looked healthy. Job gains were solid across the board in the Establishment Survey, with the major categories of businesses expanding payrolls except one (a 3k drop in durable goods manufacturing of motor vehicles and parts).

• And temporary help services (+11.6k) - historically a leading indicator of labor market health - continued to accelerate, albeit from fairly low levels.
• Higher unemployment / underemployment could be concerning to some on the FOMC, particularly given a sharp rise in unemployment for a variety of demographic categories (Black or African American +0.4%, Hispanic or Latino ethnicity +0.6%, High school graduates, no college +0.6%). And it might point to a labor market with fewer supply-side constraints, meaning less fear over inflation dynamics.

But looking at the bigger picture, this report shouldn't dissuade FOMC policymakers from pursuing the path they had envisaged coming into Friday.

• Incoming economic data still aren't pointing to an ongoing economic / labor market slowdown to the extent that the FOMC will be seriously concerned. NFPs are just one month of data, but might even bolster their belief that a "soft landing" is achievable. Absent a very weak August CPI number, any meaningful dovish "pivot" is likely to have to wait until after the September meeting.

Establishment Survey Payroll Changes By IndustrySource: BLS