The U.S. economy is expected to add fewer jobs in August vs. July, but still stay in the sweet spot seen for a soft landing. Economists are expecting to see a print of 170K at 8:30 AM ET, down slightly from the 187K climb the prior month, with the unemployment rate staying near 50-year lows at 3.5%. The labor force participation rate, or the percentage of the population that is either working or actively looking for work, is also expected to be unchanged at 62.6%, with average hourly earnings growth forecast to stay at 4.4% Y/Y.

In its effort to squash inflation by jacking up interest rates, the Fed has wanted to see more slack in the jobs market. Indeed, an overall imbalance between labor demand and supply is causing wages to remain elevated, but a batch of data this week has pointed to just what the Fed wants to see: moderating labor demand. Wednesday’s ADP jobs report, for example, showed companies in August added the least number of jobs in five months.

The BLS’ JOLTS, short for Job Openings and Labor Turnover Survey, also revealed the number of job openings in July unexpectedly fell to the lowest level since early 2021. Elsewhere, job cuts announced by employers more than tripled in August vs. July. One outlier this week was initial jobless claims, a leading indicator, slipping below the consensus estimate. Also in the Fed’s favor, the dual strikes in Hollywood are expected to impact today’s jobs data as many companies support the movie and television industry.

Analyst Christopher Robb is confident that August’s jobs report will show “something in line with a soft-landing narrative that continues the trend from the last three reports,” citing a steady decline in worker quits. He also points out some risks that could, in turn, counter his hypothesis, including the potential for workforce increases from immigration. “This could lead to a level of job growth that pushes wage pressure outside of the Goldilocks zone needed for inflation to keep coming down without Old Testament labor market carnage.”

U.S. personal spending in July came in stronger than expected, while personal income rose less than anticipated, according to the latest figures that will be closely watched by the Federal Reserve. Household spending is the biggest driver of economic growth and has already raised projections for third-quarter gross domestic product. Moreover, the headline and core personal consumption expenditures PCE price index – the central bank’s preferred inflation gauge – held steady in July on a M/M basis and came in line with estimates. That indicates the central bank isn’t considering cutting interest rates soon, with Atlanta Fed President Raphael Bostic saying on Thursday that the Fed’s policy is “appropriately restrictive.”

 

US Economy

 

  • Chair Powell’s speech at Jackson Hole was measured and revealed little new insight. Although he recognized improvements on the inflation front, he emphasized the need for further progress, indicating that the central bank stands ready to tighten policy again.

 

Source: CNBC   Read full article

 

  • The market interpreted Powell’s comments as being a bit on the hawkish side, pushing the probability of another rate hike to 65%.
  • Treasury yields climbed.

 

 

  • The Dallas Fed’s manufacturing survey shows persistent weakness in the region’s factory activity

 

 

  • as the index of production deteriorates further.

 

 

  • Manufacturers don’t expect to be very busy in the months ahead.

 

 

  • More factories expect to pay higher prices for raw materials.
  • Employee sentiment has been eroding.

 

 

  • Some economists see a pullback in consumption later this year. Here is one catalyst: Interest on federal student loans will resume this Friday, with the initial payments scheduled for October. The amount of loans in forbearance is now above $1 trillion.

 

Source: @WSJ   Read full article

 

  • Millennials are particularly exposed.

 

Source: Quill Intelligence

 

  • Some Millennials are already struggling with credit card debt, as delinquencies hit the highest level since 2012.

 

Source: PGM Global

 

  • And auto loan delinquencies are at their highest since 2011.

 

 

  • The July job openings print came in below forecasts, suggesting that the job market continues to loosen.

 

 

  • Home prices climbed again in June.

 

 

  • The ADP private payrolls report for August came in well below expectations. Although this metric isn’t a reliable forecaster of the official employment report, it suggests a potential slowdown in the job market.
  • Here are the key drivers of the decline.

– Small businesses:

 

 

– The Midwest region:

 

 

– Hotels, restaurants, bars:

 

 

  • Below are some additional hiring trends.

– Construction:

 

 

– Logistics:

 

 

  • Manufacturing (first increase in six months):
  • Consumer spending jumped in July, topping expectations.

 

 

  • Income growth slowed, with a lower-than-expected gain in July.
  • Increased expenditures, coupled with sluggish income growth, have reduced the savings rate
  • With student debt payments kicking in shortly, …

 

Source: Morgan Stanley Research

 

  • we are likely to see a sharp pullback in spending in the fourth quarter.

 

 

Market Data

 

  • September tends to be the worst month for US stocks.

 

 

  • The S&P 500 expected dividend yield is now massively below the 10-year Treasury yield.

 

 

Great Quotes

 

“To love oneself is the beginning of a lifelong romance.” — Oscar Wilde

 

Picture of the Week

 

Whale Shark in Western Australia

 

 

 

All content is the opinion of Brian Decker