Question #
What insights does the July jobs report provide regarding the state of the labor market and its implications for the Federal Reserve's monetary policy?
Answer #
The July jobs report was a genuine shock.
From what I can tell, no one really expected what was in it.
Nonfarm payrolls fell 23,000.
Consensus expected +83,000.
Government payrolls fell 53,000; private sector added 30,000.
Unemployment edged down to 4.1%, but largely due to people leaving the labor force.
Average hourly earnings up 3.2% year-over-year, the lowest since May 2021.
May and June payrolls revised down by a combined 103,000.
This was not a soft landing.
The labor market is weakening across the board, jobs, wages, and downward revisions all pointing to a softer jobs market.
This should change the Fed’s calculus significantly.
A weaker jobs market often in the past has stimulated a lower cost of capital to stimulate companies’ need for more employees.
This usually bodes well for (1) not raising rates, and (2) at some point even lowering them.
However, this data is usually in tandem with the Federal Reserve Board’s interpretation of the inflation rate environment.
And July’s CPI report was released Wednesday, August 12 at 8:30 AM.
The Bureau of Labor Statistics released the July Consumer Price Index this morning.
The headline numbers:
CPI rose 0.1% month-over-month (after falling 0.4% in June).
Year-over-year inflation: 3.4%, down slightly from 3.5% in June.
Shelter costs: up 0.1% for the month.
Food: up 0.1%; Energy: down 1.5%.
The bottom line: inflation is cooling, but slowly.
At 3.4% year-over-year, it remains well above the Fed’s 2% target and it remains above the current rate of wage growth (3.2%), meaning consumers are still losing ground in real terms.
Source: What the Jobs Report, CPI, and Bond Market May Be Telling Us About Interest Rates
