Financial News Highlights
- The U.S. added fewer jobs than expected in August, even as wage growth accelerated, and the unemployment rate edged down in financial news. Additionally, JOLTS data pointed to lower job openings, suggesting that the U.S. labor market continued to cool.
- Fed Governor Williams stated that the time had come for less restrictive monetary policy but remained mum on the possible size of any cut. Governor Waller, however, suggested he favored starting carefully.
- Manufacturing activity continued to contract in August, with demand easing. However, the services sector, continued to chug along as it has for much of this year.
With Employment Slowing, The Time to Cut is Here
In a holiday shortened week, the labor market took center stage. Both the Job Opening and Labor Turnover Survey (JOLTS) and employment report were on the calendar. Given the Fed’s recent heighten focus on the second leg of its dual mandate – to promote maximum employment – the reports carried larger than usual significance. Notably, they provided a last look at top-tier labor market data before the Fed’s meeting on September 18th. Markets were generally down throughout the week. This morning’s employment report extended that trend as 10-year bond yields edged lower relative to last week’s close (-0.22 percentage points) and the S&P500 also dipped lower (-3.4%), as of the time of writing.
The increase in August’s payroll growth came in lower than anticipated and on a three-month basis, continued to head lower (Chart 1). Additionally, the figures for the prior two months were revised down. Despite this, there was some good news – the unemployment rate ticked down and annual growth in average hourly earnings edged up. Today’s payrolls report was a mixed bag, but overall, adds to the thesis that the labour market has eased off the gas in financial news. In a statement by Fed Governor Williams, following release of the report, he was clear in his believe that it was now appropriate to dial back policy restrictiveness. Further, speaking after the jobs data, Governor Waller pointed to starting rate cuts “carefully”, but was open to moving faster if the data warrant it.
In another sign of a cooling labor market, the more backward-looking JOLTS report revealed that job openings fell more than anticipated in July to 7.7 million. This marked the lowest level in more than three years. Additionally, the job openings to unemployed workers ratio declined to 1.1 from a high of 2 in early-2022. The job separation rate also ticked up in July after a dip in June, though it still remains relatively low. Overall, the JOLTS data suggests that the pandemic era of tightness in the labor market has receded and adds to the mounting evidence of cooling labor demand and a slowing economy.
On the production side, while the ISM Manufacturing Index managed to edge up in August, it remained in contraction territory for the fifth consecutive month and came in lower than analysts’ expectations. The sector continued to experience weakness in demand as both the new orders and new export orders indexes slid deeper into contraction. The ongoing weakness in the sector rekindled some concerns over the health of the economy. On the services side, however, things were a bit better, with the ISM Services Index coming in at 51.5 in August, up just slightly from 51.4 in July. Overall, the services sector continues to hold its ground, offsetting much of the weakness evident in the manufacturing sector (Chart 2).
With the employment numbers now a known variable, the Fed’s attention will be focused on the inflation data on tap for release next week. Barring any unforeseen flare-ups, all roads seem to lead to a quarter-point rate cut at the September meeting.
Shernette McLeod, Economist | 416-415-0413
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