US: Weaker jobs report in all the right ways – Wells Fargo

The US official employment report showed the US economy added 315K jobs in August, slightly above expectations of 300K; the unemployment rate rose unexpectedly from 3.5% to 3.7%. According to analysts at Wells Fargo, today's data in isolation tilt the scales toward a 50 basis points interest rate hike at the Fed's September meeting but does not on its own settle the matter. While the August jobs report keeps hope alive that the Fed may be able to pull off the elusive soft-landing, there remains significant work ahead in quelling the inflation pressures coming from the labor market, explained analysts. 

Key Quotes: 

“The labor market cooled in all the right ways in August, at least as far as the Fed is concerned. Nonfarm payrolls rose by 315K last month, close in line with consensus expectations and with industry gains once again widespread. The pace marks a downshift from the downwardly revised 402K average recorded the prior three months, but is nonetheless a robust gain in its own right.”

“While the more moderate gain in payrolls suggests somewhat weaker demand for workers, a more balanced picture of the labor market is emerging thanks also to improving supply.”

“August's slowdown in hiring helps bridge the gap that had opened up between nonfarm payroll growth and labor market measures in recent months.”

“Today's report in isolation tilts the scales toward a 50 bps hike at the September FOMC meeting, but does not on its own settle the matter. With the Fed laser-focused on inflation, the August CPI will offer the last major piece of the 50 vs. 75 bps puzzle. But we don't see anything in the August employment report to alter the general path ahead: rate hikes are highly likely to extend beyond September and stay restrictive for a prolonged period. We expect to see more definitive signs of the labor market weakening ahead as a result, as the FOMC increasingly acknowledges that a cooler jobs market will be necessary in quelling inflation for the long haul.”