Friday, September 2, 2022
Fed Should Be Pleased with Latest Jobs Report
The economy added 315,000 payroll jobs in August after solid gains in previous months. The unemployment rate ticked up to 3.7% as more individuals came back into the workforce. (Individuals must be actively looking for work to be counted in the unemployment rate.) Broad-based gains in payrolls and a rising unemployment rate should ease some concerns for the Federal Reserve (Fed). As Fed Chairman Jerome Powell said recently, the labor market is still “clearly out of balance” but perhaps, the current labor market is finally moving in the right direction for policy makers. “An uptick in unemployment along with a modest increase in the participation rate means that the labor market in August was less tight than it was in July,” explained Jeffrey Roach, Chief Economist for LPL Financial.
As shown in the LPL Chart of the Day, both the three- and six-month moving averages declined in August as the labor market cooled. The orderly decline in the longer-run averages is the “Goldilocks” scenario the Fed seeks. Overall, this is a good report for those concerned about inflationary impacts of a tight labor market.
Not All Was Rosy
One caution flag waving right now is the rise in part-time workers who otherwise would be interested in finding full-time work. Businesses are likely feeling the effects from unfavorable business conditions and are, therefore, hiring more on a part-time basis, frustrating some workers.
Another caution flag is the consistent rise in temporary help services. Businesses often begin cutting these jobs during periods of economic uncertainty and an increasingly large number of individuals at these roles create instability in the labor market. The U.S. economy has the highest number of temporary help workers since data collection began in 1990.
More Coming into the Workforce
The August participation rate rose to 62.4% from 62.1% last month. The participation rate of the “45-54 year old” cohort is now back to the pre-pandemic rate. However, all other cohorts are still below pre-pandemic rates, suggesting that the labor market could loosen in the coming months as more re-enter the workforce. We think the high inflationary environment will eventually bring those people back into the workforce who had taken early retirements during the pandemic. In sum, this report will not likely change the current path of Fed tightening since inflation pressures have not eased enough for policy makers nor investors.
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