Employment

The further slowing we were worried about last month, particularly in the prime-age employment rate, did not materialize. This sets back expectations for earlier and more rate cuts this year, but it’s certainly a good report for anyone concerned about the left tail of labor market risk.

The labor market is treading water at this point. It’s not drowning, but it’s unclear how long it can remain in this state.

Due to the October payroll number marred by hurricanes and the Boeing strike, the real signal comes from the household survey (where those who are absent due to weather are still counted as employed) and the negative revisions to previous months.

Make no mistake: this is good news. The Fed has made a commitment to not allowing the labor market to deteriorate further, and we’d rather not see that commitment tested.

We will be hoping for two things at the September meeting this week: a 50 bps cut and minimal upwards revisions to the unemployment rate projections in the Summary of Economic Projections (SEP).

Thanks to outperforming supply-side dynamics, the labor market has already rebalanced. At the same time, income growth is still decelerating and the lagging bits of the inflation overshoot are finally normalizing as a result. The August jobs report should shape how much and how fast the Fed should be cutting,