The recently released August jobs report had folks talking. That makes it the first big employment data release since former President Donald Trump’s White House ousted the Biden-appointed Bureau of Labor Statistics (BLS) commissioner. Federal Reserve Chair Jerome Powell has emphasized a shift in focus from traditional headline payroll figures to more nuanced measures, such as the unemployment rate and the “breakeven” number of jobs needed to maintain stability in the labor market. These shifts have occurred against a backdrop of new and persistent economic pressures, including a sharp rise in laid-off workers and growing labor differential.
In recent years the figures for August payrolls have been a regular source of disappointments for analysts’ forecasts. In the last fifteen years, this occurred ten times, though subsequent revisions tended to raise the actual figures significantly. This sudden trend has left many wondering how reliable preliminary employment data can be in the current climate and what that means for overall economic assessments. Moreover, wage growth would seem to be dead in the water, with month-on-month growth rates anchored at 0.3% and year-on-year growth rates stuck at 3.8%.
The difficulties are mounting. The amount of job creation required to keep a stable unemployment rate has now fallen precipitously to only between 30,000 and 80,000 jobs. Second, Trump’s hardline immigration policies have drastically reduced the number of would-be workers allowed into the labor force. Consequently, labor-market hiring has contracted in industries that significantly rely on immigrant workers. Job growth in these sectors tanked to only 4,000 in the second quarter. That’s a huge difference from last year’s average of 27,000!
Indeed, the most recent Challenger report features a somewhat alarming increase in layoffs, with numbers up to 86,000. This trend reflects a major tightening in the labor market. For the first time since April 2021, the Job Openings and Labor Turnover Survey (JOLTS) shows that unemployed workers have outnumbered job openings. This recent shift from Recession to Recovery underscores some deeply troubling trends in our labor market. Consumer confidence is taking a hit, with fewer Americans viewing jobs as plentiful and more Americans viewing jobs as hard to get.
Federal government employment shows the same type of contraction, with a monthly loss of about 14,000 jobs since February. The recently extended federal hiring freeze until mid-October, alongside resumed layoffs following a Supreme Court ruling, is predicted to reduce government payrolls by around 20,000. These types of advancements indicate that the public sector is not the only one preparing for tough economic times ahead.
Analysts are particularly focused on what’s expected to be a major increase in the unemployment rate, projected to jump to 4.3%. Still, that number is well below the Federal Reserve’s year-end prediction of 4.5%. Meanwhile, the market sentiment is turning. How a bad August jobs report could lead to a 50 basis point interest rate hike. On the other hand, a lukewarm report might be frontloaded by next week’s scheduled annual benchmark revisions, which will go back and revise employment figures substantially.
With everything going on all around our new employment landscape, it’s intimidating and overwhelming. Market participants are not expecting much volatility at all after the release of the jobs report. The S&P 500 index implied move is just 0.70%. This is one of the tightest pre-non-farm payroll report setups we’ve had in at least the last several years. Market participants could easily question the trustworthiness of the data. Such skepticism might spill over into a general skepticism about future economic conditions, giving rise to lower expected future volatility.
Powell is now focused on figuring out what’s going on with the long-term trends in the labor market. Job creation should be a primary focus of policymakers and economists—not just quantity of jobs, but quality of jobs and long-term job stability. The economic implications of immigration restrictions, wage stagnation, and rising layoffs will undoubtedly influence future decisions by the Federal Reserve regarding interest rates and monetary policy.