Good morning!
August’s jobs report came in much stronger than expected, even as other data pointed to a cooling labor market. That sets us up for a pivotal inflation report this Friday as it pertains to the Fed’s next move. Let’s get into it –
- August Jobs Report Surprises to the Upside
- Private Sector Hiring Slows to Seven-Month Low
- Weekly Rate Recap and What to Expect This Week
August Jobs Report Surprises to the Upside
August hiring came in well above expectations, with the economy adding 162,000 jobs – nearly three times the expected gain. While this is welcome news for the labor market, it bolsters the Fed’s ability to consider a rate hike. More on that below… Payrolls for June and July were also revised higher by a combined 55,000 jobs which was a reversal from prior reports revising job numbers for additional losses.
Additionally, full-time employment rose by 735,000 while part-time employment fell by 223,000. Job gains were strong in several sectors, including a 62,000 increase in leisure and hospitality. If that wasn’t enough, the unemployment rate remained at 4.1% for the right reasons – labor participation, people going to work, rose 0.2% to 61.6%. On all fronts, this was a strong report for the labor market. Because it was unusually strong, we will be paying close attention to the revisions in the coming months to see if these numbers are revised downwards.
Private Sector Hiring Slows to Seven-Month Low
Meanwhile, the ADP Employment Report painted a much softer picture than the government’s jobs report (the prior section above). Private employers added just 38,000 jobs in August, below expectations of about 50,000 and well below what the government reported at 127,000 private sector jobs. This ADP report for August marked the slowest pace of private-sector job growth since January.
Large businesses accounted for most of the hiring while smaller employers added workers at a slower pace. Among workers who changed jobs, pay rose an average of 7.3% in the prior year, compared with 4.4% wage growth for workers who stayed with their current employer.
Weekly Rate Recap and What to Expect This Week
This week is all about the latest inflation data, Core CPI in particular. This report is scheduled for Friday and the forecast for Core CPI which strips out the cost of energy and food, is expected to have risen 0.2% in August. This will replace the August 2025 reading of 0.3%. If CPI hits as forecasted, year-over-year core inflation would decline from 2.5% to 2.4%. If this plays out, it’s hard to envision the Fed hiking rates. However, following the better-than-expected jobs report, if this reading comes in hotter than 0.2% leading to another stagnant annual reading, or worse, an increase, a Fed rate hike would be on the table. Voting Fed Member Waller has said a hot Friday CPI could tilt him to a rate hike, and a cool one keeps another rate pause in play.
The next Fed Meeting is coming up on 9/15-9/16 so Friday’s CPI data will be the last major print before the meeting. Expect the bond market, and rates, to start pricing in the chances of a rate hike or rate pause based on the CPI results.
On the rate front, rates ticked up from an average of 6.81% to 6.89% for well-qualified buyers on the usual culprits – Middle East impacts on inflation, and the stronger than expected jobs report.
I hope you enjoyed this week’s newsletter. As always, please don’t hesitate to reach out if you have any questions!