Labor Markets

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.

“The time to support the labor market is when it’s strong, and not when you begin to see layoffs.”

Our new baseline is a 50 bps cut with a total of 75 bps of cuts in the SEP for 2024. It’s a close call but we think a 50 bps cut is more likely than a 25 bps cut. We think a 50 bps point cut is the right move.

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

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,