Today’s report calls into question Chairman Powell’s view that the labour market is in balance.
The Numbers.
- 73k jobs created vs 104k expected
- The previous two months’ payrolls were revised lower by 258k vs an expected 16k increase
- This brings the 3-month average payroll growth to 35k, which is below the rate needed to absorb new entrants to the labour market
- Unemployment rate 4.3% (4.248% unrounded) vs 4.2% expected
- YoY hourly earnings growth 3.9% vs 3.8% expected
Implications.
The sizable negative revisions cast serious doubt on the narrative of a balanced labour market. With tight immigration slowing labour force growth and evidence of ‘labour hoarding’—employers holding on to staff without adding headcount—clarity on the true state of the job market remains elusive.
That’s why we believe the unemployment rate is the Fed’s most telling labour market gauge.
With another jobs report due before the next FOMC meeting, a 25-bps cut is now firmly in play. As a result, bond yields have moved sharply lower, with US 2-year yields dropping 19bps and US 10-year yields lower by 11bps.