'Goldilocks' Jobs Report? Labor Market Is Still Too Hot For The Fed; Dow Jones Falls

The jobs report showed an increase in labor force participation, but it is not indicative of a larger trend.

The U.S. added 315,000 new jobs in August. This was too much for the Fed. The Labor Department's survey of households showed a large increase in the labor force participation rate, which gave a quick boost to optimism that the Federal Reserve could engineer a soft economy landing. The Dow Jones Industrial Average initially rose, but the gains were short-lived, probably because Russia announced it would not reopen Europe's main gas pipeline as planned.

A jobs report, which was hailed by many as 'Goldilocks-like', does not live up to its billing.

The first detail:

The average hourly salary rose by 0.3% in the last month, compared to expectations of 0.4%. The 5.2% annual wage growth was slightly below expectations of 5.3%.

The combined job gains of June and July have been revised down by 105,000. However, the average for three months is still a very strong 378,000.

The unemployment rate increased to 3.7%, up from 3.5%. The unemployment rate rose to 3.7% from 3.5%, but only because more people entered the labor force (786k), which means they are working or looking for a job.

The Labor Department's monthly employer survey provides the headline figures for employment and wages. Separate household surveys provide information on labor force participation, employment status and unemployment.

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Prior to the release of the August jobs report the labor force participation rate had dropped in three out of the last four months. This pushed the unemployment rate down to 3.5%, a level not seen for half a century. In this context, the jump in August's participation was a great thing.

Could this be the beginning of a trend? It looks like the last gasp of an economy that is running out workers.

Adjusted for seasonal factors, the 16-19-year-old age group saw a rise in labor force participation of 331,000. Unadjusted, the participation rate fell by half a million. It's possible that teens just kept their summer jobs for a few more weeks.

The majority of the increase in labor force was among those aged 25 to 54. This is good news. But here's what's not so great: the percentage of adults in prime working age with jobs has jumped from 80% up to 80.3%. This is just below the peak of 80.5% pre - Covid, which was highest since 2001.

While an 80.5% employment-to-population ratio may not be a ceiling for prime-age workers, it may take big wage gains to keep raising that level, which the Fed is determined to fight.

The other problem is that the growth of adult population is heavily skewed towards those aged 65 and older, who are much less likely to be employed than they were before Covid. Please read IBD’s weekend cover article to get a better understanding of what's wrong with the economy and job market.

The Friday jobs report reaffirmed confidence in the job market. The employer survey showed a strong increase, but the household survey showed a drop of 168,000 in the last four months. The 442,000 rise in August seemed to undermine the argument that the employer survey was off by 1.68 million over the same period.

Maybe not. The August household survey showed that full-time employees fell by 242,000 while part-timers grew by 413,000.

Since March, part-timers have increased by 335,000, while full-time employees are down 383,000.

The Dow Jones dropped 1.1% despite a good start on Friday. The S&P500 lost 1.1%, and the Nasdaq Composite 1.3%.

The Nasdaq has been trying to break a six session losing streak ever since Jerome Powell said in his Jackson Hole address that the Fed would keep its policy tighter longer, increasing recession risks.

The Dow Jones is now just 4.8% higher than its closing low of June 17, despite having fallen 14.9% since its all-time high on Jan. 4, 2014. S&P 500 has risen 7% from mid-June but is down 18.2% since its closing record high. The Nasdaq Composite is 9,25% higher than its bear-market bottom, but still 26.5% lower than its record high.

After Powell's speech, the summer rally in stock prices slowed down because Wall Street sees no hope of interest rate relief until an extended period with subpar or worse growth.

The markets had priced in 56% of another 75 basis-point move during the Federal Reserve meeting on September 20-21. This was down from the 70% odds that were placed before the employment report.

The 10-year Treasury yield fell 7 basis points after the jobs data. It had risen to a 2-month high of 3.265% on Thursday.

Read IBD's The Big Picture daily to keep up with market trends and the implications for your trading decisions.

Employment in the leisure and hospitality industry increased by 31,000. The factory employment increased by 22,000 jobs.

The number of construction jobs increased by 16,000 Payrolls in health care and social services increased by 61,500. Retailers created 44,000 new jobs while transportation and warehouse jobs increased by 5,000.

Follow Jed Graham @URL on Twitter for economic policy and financial market coverage.

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