The U.S. economy only added 22,000 jobs in August. Here’s why an expert says there’s no reason to panic.
Transcript:
CAROLINE WOODS: Joining me here at the desk is Brett Ryan, Senior U.S. economist at Deutsche Bank. Brett, thanks so much for being here.
BRETT RYAN: Great, thank you for having me.
CAROLINE WOODS: So we got the August jobs data. The economy added 22,000 jobs, far fewer than what economists were expecting around 75,000. Unemployment rate at 4.3%. Put these numbers into perspective for us. What does it actually tell you about the state of the labor market right now?
BRETT RYAN: Yeah, it tells you that the labor market has definitely been slowing a bit over the summer months. It’s following a similar pattern that we saw last summer, and that partly reflects the low hiring, low firing dynamic that we’ve been in for some time. In addition, slowing income growth. One of the things that people miss is that there was a downtick in hours worked. So 1/10 down tick in hours worked along with the downward revision to the prior month. So the pace of income growth that you would extrapolate from the report is about 4.4% year over year, and that’s down from about 5% what you thought previously. So definitely a slower pace of income growth, slower labor market.
Debatable about how much weaker it is. To your point, the unemployment rate did tick up to 4.3%. But that was also due to participation rising. And, you know, there are signs — there was 288,000 in household employment, along with an uptick in unemployment. And that’s what gave you that rise in the unemployment rate. So slowing a bit, there is a difference between that and “oh my gosh, we’re heading into a recession.”
CAROLINE WOODS: So how concerned are you about how much the economy and the labor market is slowing right now?
BRETT RYAN: Sure, so given the pattern that we saw last summer, it’s not terribly concerning, because it’s really following pretty closely to that pattern and the fact that you’ve had a slow creep up in the unemployment rate and not a sharp rise in the unemployment rate. For example, this time last year, you were looking at about a 44/10 increase in unemployment rate over a four-month period. Now we’re talking about a slow creep up, a couple of tenths over a three-month period. And so the speed of the move is less concerning relative to this time last year.
So I think it reflects slower growth, fears of tariffs, but not a complete collapse or something more sinister that would require a very sharp policy response.
CAROLINE WOODS: Do we have some insights into why companies are hiring less? Is it because of tariff uncertainty? Is it AI replacing jobs? What is it?
BRETT RYAN: Yeah, so there are a few things. The big question is how much of this is being driven by supply versus demand factors. So supply factor being a sharp crackdown on immigration, deportations, and impediments to illegal immigrants showing up at work. That’s probably weighing on the establishment survey somewhat. But then versus demand factors, which would be employers slowing hiring. Now, in terms of it’s already been a slow hiring environment. And the JOLTS data from July that we saw earlier in the week pointed to more of the same, as opposed to a step shift into lower demand.
So I’d say it’s a combination of supply and demand factors. The main question for policymakers is how much of this is supply driven versus demand driven. There’s evidence on both sides. I would say that supply factors are probably the more dominant one at the moment. But, you know, that debate is certainly an open one.
CAROLINE WOODS: So the everyday American listening in — is it time to panic?
BRETT RYAN: No, it’s not time to panic. Absolutely not. Jobless claims, other labor market indicators — jobless claims don’t indicate broad-based weakness in the labor market. It’s more of the same uncomfortable equilibrium that we’ve been in for the last 12 months. There are pockets of weakness in the country, no doubt. But if you look at the top four population states, which account for about a third of payrolls, jobless claims aren’t telling you anything different than they were this time last year.
CAROLINE WOODS: OK, and then, of course, the big question is, what does this mean for the Fed. The market was already pricing in a Fed rate cut later this month. Could this weaker-than-expected report make the Fed cut 50 basis points instead of 25? What do you think?
BRETT RYAN: Yeah, so I think it’s helpful first to think about the June summary of economic projections that they released at that meeting. That summary had a median growth rate of 1.4%, a core PCE rate of 3.1%, an unemployment rate of 4.5%, and two cuts. Where are we tracking relative to that?
Subscribe |
Earn. Live. Invest. |
TheStreet Pro |
#jobsreport #jobsearch #career
source
