Economic Update: September 2024
Change State Friends
Greetings from September! As sunny summer days fade into the rearview, for autumn enthusiasts, it’s time to embrace the changing leaves and cooler breezes. If you’re not already holding a pumpkin spice latte in your hand, then maybe you suffer from the “September Scaries”? While technically, it’s not yet autumn for another 12 days, if you feel like there is a push to embrace all things fall earlier and earlier each year, you’re not alone.
I’m personally in no rush to wish away the remaining warm days. But as for the economy, cooling winds are prevailing…and it might be time to grab that jacket.
Let’s get into it.
Cheers 
Nicole
Economic Snapshot
August’s heavily anticipated report (“it’s the economy interest rates, stupid”) showed employers added just 142,000 jobs in August, and in a reversal from last month, unemployment ticked back down to 4.2 percent. Job gains were weaker than predictions of closer to 161,000 jobs, and alongside revisions from earlier summer suggest a consistent cooling trend. Job gains were revised downward by 86,000 for the previous two months, making July’s jobs gain the smallest since the pandemic. Last month was also the weakest August for job growth since 2017.
Jobs growth was again tightly clustered in August: more than one-in-six of the jobs created last month came from the government. Other top sectors included construction, which added 34,000 jobs, and healthcare, which grew by 31,000. Highly concentrated job gains have been worrying economists for months, and of course there’s concern that recent “ok” job gains may turn out to look weak in future revisions.
[An interesting note – the lackluster numbers may be also reflective of a peculiar seasonal trend, in which August payrolls are initially reported lower, and then revised higher later. In fact the original August counts have been revised higher in 10 of the last 13 years, suggesting that Friday’s release may under-report actual job growth.]
The economy received further cooling news from last week’s July JOLTS report. Job openings, a measure of labor demand, fell to 7.7 million in July, the lowest level since January 2021. And late last month the US also reported it had overestimated jobs growth in the period from March 2023 to March 2024 by 818,000, painting a significantly less rosy picture of labor market recovery in the last year. A slowdown in hiring can often be a precursor to layoffs, and continued reduction in hiring, even without an increase in layoffs will continue to put upward pressure on unemployment.
One of the (many) oddities of recent job reports is the significant rise in unemployment, without a corresponding decrease in employment. This suggests that the increase in unemployment is mostly due to people entering the workforce, which helps explain why prime-age employment has remained at such historically high levels. While this may temper some apprehension about increasing unemployment, policymakers are nevertheless keeping a careful eye, as recessions typically start with a sudden jump in joblessness.
“The payroll numbers were weaker than expected, but when you look deeper into the numbers and other economic data which is holding up well, there’s not reason to panic,” said Beth Ann Bovino, chief economist for U.S. Bank.
If it is not all doom and gloom, then what data is holding up well today? Friday’s report showed solid wage growth last month: average hourly earnings rose 0.4% and wages increased 3.8% year-on-year, which should help to support continued strong consumer spending, which also rose at a healthy pace in July. The average workweek rebounded to 34.3 hours after disruptions due to Hurricane Beryl, and the sharp reduction in temp help we saw in July was reversed as the number of workers who were on temporary layoffs declined by 190,000. Finally, the share of Americans 25 to 54 years old participating in the labor force persists at longtime highs, with layoffs remaining at historic low levels.
And yet the US labor market is in an unexpected spot: low layoff rates mean those with jobs have a relative sense of security, yet, with weakened hiring overall and declining quit rates, finding a job has become much harder.
From here, the path forward remains tricky. The Fed is expected to cut interest rates for the first time since the pandemic later this month. However, with a mixed bag of signals, Friday’s jobs report doesn’t clearly resolve the magnitude and schedule for cuts and officials remain noncommittal. One thing is clear, however: “We do not seek or welcome further cooling in labor market conditions,” Jerome H. Powell, the Fed chair, said in late August.
Instead, Fed Chair Powell signaled that the central bank’s focus has shifted from tackling inflation to circumventing further job market degradation: the US “increasingly appears to be [on] a sustainable path” to the 2% inflation target, so “the time has come for policy to adjust”.
While a rate cut is all but certain, experts remain all over the map about job market signals and rate cut predictions:
- “Does this report suggest the need for a 50-basis-point rate cut in September […] we would say no because … the vacancies-to-unemployed ratio is still high by historical standards” remarked Conrad DeQuadros, senior economic advisor at Brean Capital.
- “The August jobs report did little to settle the debate if a 25 bps or 50 bps rate cut is coming this month. We’re sticking with 50 bps, but acknowledge 25 bps as a real possibility,” wrote economists at Wells Fargo in a Friday note.
- “I think the market’s really struggling with this one because [the report is] really in the middle of what could be used as a justification for either a 25 or 50 basis point rate cut,” Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said.
- “Our takeaway is that the market hasn’t yet realized the full extent of labor-market weakness — leaving room for further, potentially large market corrections as the narrative and forecasts align more with the data,” Bloomberg Economics US economists wrote Friday.
- “It raises some serious questions, not just about this meeting, but over the next several months […] How do we make an effort to not have things turn into something worse,” questioned Chicago Fed President Austan Goolsbee.
Fed Governor Christopher Waller suggested that a half-point cut would be unlikely in September while he was remaining open to a bigger rate move at some point. Financial markets initially raised the chances of a half-point reduction to above 50% before slashing them to 25%, and the odds of a quarter-point reduction increased to 75% from 57% earlier according to CME Group.
A mere quarter-point cut could potentially prove problematic for the Fed, however. There is no meeting scheduled for October, and if the labor market continues to deteriorate, we’d likely have to wait until November for further easing. Fed Gov. Waller said the central bank would probably end up cutting rates multiple times. But determining the pace will be “challenging”: “I was a big advocate of front-loading rate hikes when inflation accelerated in 2022, and I will be an advocate of front-loading rate cuts if that is appropriate.”
Investors will focus on tomorrow’s inflation data as the final clue, which is expected to show a moderation in headline inflation. The August CPI report is likely to be as closely watched as the jobs report, as it will confirm or deny expectations for the biggest rate move in a very long time.
“I’ve got to give the Fed credit for the fact that — while it wasn’t always obvious that this would be the case — they moved strongly enough and vigorously enough […it looks] like we’re going to get out of this very costly inflation episode without a major recession.”
(Sources: Economic Policy Institute, ABC News, The Washington Post, AP News, Forbes, Bloomberg, Guy Berger via Substack, Reuters, The New York Times, JP Morgan, Wells Fargo, The Wall Street Journal, MarketWatch)
What else?
What Else for September?
- X (née Twitter) commentary on the August jobs report from the EPI here.
- Check Out Phenom’s Definitive Guide to AI recruiting in 2024 for an in-depth look at the challenges of applying AI in recruiting, and a brief analysis of tools available to recruiters, today.
- In other AI news, according to a recent Gartner article, more than three-quarters of employees doubt that their organization’s future use of AI will be ethical. This includes fears about how AI will be applied, including job displacement and data insecurity, among other worries. The article outlines ways to address 5 concerns employees have about AI.
- The Talent Labs new Recruiter Time & Motion Study shares analysis on where recruiters are spending time, how this varies by role, and where some of the greatest opportunities for automation may lie.
- From sourcing experts to talent advisors: a new report from the Josh Bersin Company reveals why organizations need the strategic advice of their recruiters to achieve critical business objectives in a rapidly evolving market.
- Evaluating flexible work for certain jobs or job families? Check out CIPD’s flowchart for assessing a role’s suitability for hybrid work.
- Dive into the curious world of the American penny – a mind-boggling logistical nightmare – and consider the case for abolishing the coin.
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(Sources: Economic Policy Institute, Phenom, Gartner, The Talent Labs, The Josh Bersin Company, CIPD, The New York Times)