The labor market report answered one important question, but left us puzzling over another

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Throughout the week we have seen numerous charts pointing to a deterioration in the labor market situation.

Wednesday's JOLTS data showed that job openings fell in July to their lowest level since January 2021.

Thursday's ADP data showed the lowest monthly growth in private jobs, also since 2021.

The story these charts tell is clear: the labor market is cooling down – to an extent that is causing some unrest in the markets.

The final update came Friday morning with the highly anticipated August employment report, the gold standard for measuring labor market conditions. And it was anything but final.

As our chart of the week shows, this only answered one of the two key questions that the markets were asking themselves.

The first question is whether the labor market, which landed a little too hot in July, is now crashing. It is not. After the unemployment rate hit 4.3% in July that triggered the Sahm rule, August data shows the level coming out of its turbulent mini-dive and flattening out again at 4.2%.

To stick with the standard aviation metaphor, economists' reactions are that the hope for a soft landing is still very much alive.

But Nick Bunker, director of economic research at Indeed Hiring Lab, wrote in a note Friday morning: “The current pace is approaching stall speed.” The previous two editions, in June and July, had revised hiring numbers downward. And while they beat August's numbers, they fell short of expectations for more robust growth of 165,000 jobs.

Those revisions and negative numbers could add to the concerns of a market that finds the Fed's rate cuts uncomfortably slow, but economists continued to point in the direction in their commentary, with some noting that while the labor market has not improved significantly, it also will not stumble so much that a 50 basis point rate cut – the larger of the two options – is certain at the Fed's September meeting.

This may not be satisfactory for a jobs report that is supposed to answer this question, but the months we have been waiting for details on the next rate cut have already turned into years.

And now that it's confirmed that the plane won't smash its landing gear just yet, investors can wait a little longer. As Julie Hyman wrote earlier this week, a 50 basis point rate cut is the Fed saying, “OK, the economy is starting to make us nervous,” but it's not even clear that would be welcome – no matter how much the economy craves lower rates.

The story continues

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