US: Labor market to show slower warming

In the details of the August employment report, which will be released tomorrow, we will likely see more softened pressure than the previous month. It is seen that the market expectation is 298K in the increase in non-farm employment, 3.5% in the unemployment rate and 62.2% in the labor force participation rate. Average hourly earnings are expected to increase by 0.4% monthly and 5.3% annually. We observe that there is no clear market consensus in the headline employment data and that the expectations are spread over a wide range of 75K – 452K.

While the August jobs reports will show that the labor market is likely to be slightly less warm than the previous month, we still consider firms to continue hiring and unemployment to decline in the baseline scenario. We expect the pool to expand less, especially as the labor force participation rate is stagnant, which indicates that unemployment may decrease even if employment increases continue at a slower pace. Wage increases may not have reached their peak yet, we can see the high trend in the monthly data in the inflationary environment.

Average hourly earnings are accelerating. Source St. Louis Fed, Bloomberg Economics

Besides all these; There are positive signs that the labor market is still strong enough to carry the economy. Indicators showing that the economy still has enough resilience for the Fed to continue raising interest rates seem to continue for a while. This employment data is also probably not suitable for changing the Fed's plan at this stage. will show that it is not suitable.

If we take it in general; For now, the focus is on whether the FOMC will raise it by 50 or 75 basis points at its September meeting. Powell's Jackson Hole speech lays out the Fed's action plan that despite monthly easing in the CPI, it will continue to take a proactive stance in the overall perspective and does not believe its mandate is complete yet. As Powell stated, the aggregate trend and direction of the data on recession or inflation are discussed. If we evaluate the labor market data in this perspective, an increase of 75 basis points seems a little more likely in September.

Kaynak:Tera Yatırım-Enver Erkan
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