MNI US Employment Insight: Summer Softening To Spur Fed Action

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Quick Take: Most Indicators Point To Uncomfortable Increase In Labor Market Slack

• The August nonfarm payrolls report surprised on the dovish side for both payrolls employment and the unemployment rate. It confirms there are indeed rising downside risks to employment but also that the “curious” kind of balance in the labor market, per Powell’s words, remains in play.
• Nonfarm payrolls growth surprised lower in August (22k vs Bloomberg cons 75k) along with a two-month downward revision of -21k that offered no offset to last month’s historically large downward revisions.
• What’s more, the 22k increase would have looked a lot worse without a switch to a more favorable seasonal factor – the NSA change in August was the lowest for an August since 2015.
• Three-month seasonally adjusted averages stand at 29k for both nonfarm and private payrolls or a particularly weak -30k for private payrolls excluding the cyclically insensitive health & social assistance.
• These payrolls figures need to be viewed against recent breakeven estimates roughly in a range of 50-100k but with some seeing scope for lower numbers.
• The unemployment rate offers a better guide of labor market balance amidst a sharp decline in labor supply under the Trump administration, something multiple FOMC members mentioned in recent weeks.
• Here, the unemployment rate was on the dovish side at a new recent high of 4.324% after 4.25% in July. Consensus had been for 4.3% but with a skew to a 4.2% print.
• Remember though, the median FOMC member in the June SEP pencilled in an u/e rate of 4.5% in 4Q25.
• From an employment growth perspective, the latest vintage of data suggests that June was the low point (when nonfarm payrolls fell -13k for the first decline since Dec 2020. That chimes with continuing claims data, which increased in late May/early June before stabilizing, as well as ADP private employment.
• As for wages, AHE was on the soft side of expectations in August considering downward revisions to average hours worked. It’s seen year-ago growth moderate further to 3.7% Y/Y, albeit stronger at 3.9% Y/Y on a non-supervisory employee basis, and with productivity gains still keeping unit labor costs in check.
• A 25bp cut from the Fed on Sept 17 is more than priced (28bp at typing vs 30bp at one point post-data) whilst markets have shifted to almost pricing three consecutive cuts to year end with a cumulative 72bp.
• Still ahead on the labor front before that FOMC decision, preliminary benchmark revisions next week on Sep 9 with large downward revisions expected (-550k seems to be a minimum view for now). v