Jobs Day

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.

Even though today’s report gave back some of the weakness in the July household survey, the reversion was slight. The August report meets the conditions we laid out yesterday for a 50 bps cut in September to play catch-up.

We see two individually sufficient conditions for the Fed to proceed with a frontloaded interest rate cut in September above 25 basis points: either (1) the unemployment rate is 4.2% or above, or (2) the prime-age 25-54 employment rate declines in both month-over-month and year-over-year terms. Back when we