Economic Data Tracker –
August jobs report solid, but cooling

Trend watch and what’s new this week

The activity-based data (slides 5 and 6) remains mixed. Most of travel-related data, including hotel occupancy and air passenger counts, has continued to slide. The weekly air passenger count fell below 15 million for the first time since May, though that is fairly typical for traffic to dip seasonally as the summer wanes.

But restaurant bookings have continued to buck that trend. It rose to +7.7% compared to pre-pandemic levels, which was the second highest post-pandemic reading. Only the week of Valentine’s Day 2022 was stronger at +10.3%.

Rail traffic and truck loading both rose MoM in August. Yet, overall mobility and back-to-office have softened in the latest week.

Temp staffing (slide 7) also rebounded since mid-August. Excluding the 2021 holiday season, when it hit 108.7, the staffing index remains above the pre-pandemic all-time high of 105.8 set in December 2014.

August job growth solid, but labor market cooling now evident

U.S. payrolls increased in August by 315,000, roughly in-line with the consensus of 300,000. That was coupled with downward revisions of 107,000 for June and July, pulling the six-month average under 400,000, the slowest six-month pace since the reopening period in 2020. Yet, job growth remains significantly stronger than the pre-pandemic three-year average of 181,000.

Importantly, the unemployment rate rose to 3.7%, the first increase from the lows of this cycle (slide 8). Meanwhile, the industry results were solid, albeit less than the prior trend, with gains in all the major industry groups.

On slide 9, we take a deeper dive into some sub-industry job trends, which remain uneven. We look at general merchandise stores and residential nursing care facilities.

Manufacturing may be stabilizing

Two separate gauges showed possible stabilization within manufacturing. The Institute for Supply Management (ISM) Manufacturing Index held steady in August. Within the components, new orders rebounded after contracting for two straight months. Also, the sharp pullback in the price paid component during past five months (April through August) suggests that inflation has already peaked within manufacturing.

Meanwhile, S&P Global’s US Manufacturing Index for August was revised upward 51.5 from the preliminary reading of 51.3. While it fell from 52.2 in July, a reading above 50 signifies an increase in manufacturing activity for the month. 

Our take

The August jobs report was a story of not-too-hot, not-too-cool job growth. Headline job growth remained solid, but the six-month average fell below 400,000 for the first time since late 2020. The industry results were solid, albeit less than the prior trend, suggesting that it’s an economy-wide chill rather than concentrated within one or two industry groups.

Meanwhile, quite a few components within the jobs report reinforced the notion that overheating labor market conditions are cooling from the hard boil during 2021. For instance, the unemployment rate rose for the first increase this cycle, along with an increase in the labor force participation rate. Also, average hourly earnings were steady on a year-over-year basis for the third straight month.

In sum, this implies a more gradual cooling of the economy rather than a jarring drop off. This could allow the Fed to eventually relax its aggressive stance as inflation pressures fade more broadly, though that is a rather tall task.

In the meantime, the debate of a half-point (0.50%) or three-quarter point (0.75%) rate hike at the next Fed meeting remains squarely on the table. There’s a lot more data coming between now and the next Fed meeting on September 21 – most notably, another month of inflation data. On that front, various price measures show that inflation appears to have peaked; however, it’s not entirely clear whether inflation expectations are moderating enough to satisfy the Fed decisionmakers.

In our view, the Fed will continue with larger interest rate hikes in the near term, reiterated by Fed Chairman Jay Powell in his Jackson Hole speech last week. He directly and unambiguously stated that the Fed would stay the course with its hawkish stance, maintaining a myopic focus on tamping down generationally high inflation. He pointedly referenced history regarding the dangers of prematurely loosening policy as validation to keep rates higher for longer. Since then, there has been a seemingly unanimous tone from other Fed officials in their public comments.

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