Labor Market: Friday’s Jobs Report to Show Moderate Growth

Cheddar News

The U.S. added 142,000 jobs in August, below expectations. The unemployment rate fell to 4.2%. The cooling job market raises chances for an interest rate cut.

Transcript

00:00Did the Federal Reserve wait too long to cut interest rates?

00:08Will they have to double the size of the anticipated cut to make up for being late to the party?

00:13Just a few of the questions being asked given the state of today's job market.

00:19Corey Kantega, head of economics for America is at LinkedIn here with answers.

00:23Fortunately for us, Corey, good to see you.

00:25So was the Fed late?

00:28Will we see a 50 point cut to calm the fears?

00:32Well, there's definitely concerns about whether the Fed was late or not.

00:37But I don't think we'll be able to know that right now.

00:39It's going to take some time for that to be able to show.

00:42If we do find ourselves seeing sharper increases in unemployment, then there may be an argument

00:47that monetary policy is a little bit behind the curve.

00:50But right now, it's just too early to tell.

00:53The talk around here is if there's a 50 point cut, the markets would then suffer because

00:58they would think, oh, the Fed must know something we don't.

01:03What do you make of that theory?

01:05I think that's right.

01:06I think the Fed has been pretty clear about signaling gradual cuts like a 25 basis point

01:11cut.

01:12I think they're going to stick to that.

01:13They want to provide stability and reliability in terms of the signals that they're giving

01:17to the market.

01:18So I would be really surprised if they went for a 50 basis point cut.

01:22We'd really have to see something bad in the jobs report for that to even be on the

01:25table.

01:26We've seen some numbers come in, including ADP data and job openings, the lowest since

01:30January 2021.

01:33What's the significance of that?

01:35And how important is Friday's jobs number?

01:38Well, the job openings comes from the JOLTS report.

01:42That's the Job Openings and Labor Turnover Survey.

01:45Particularly the job opening series is quite volatile.

01:48So from month to month, it'll jump up, it'll jump down.

01:51I think what's significant about that number is that now we're below $8 million.

01:55So we've been pretty much above $8 million for the last few years.

01:59And now we're below $8 million in terms of job openings.

02:02And when there are fewer job openings, that means there's probably going to be more slowdown

02:06in hiring.

02:07There's probably less opportunities for people to add to that payroll number for job gains.

02:12So if we start to see that payroll number slow, that's going to be a signal to the Fed

02:15that you know what, maybe we're at full employment or possibly slipping below that.

02:20Sure.

02:21And Corey, there's so much data out there.

02:24Let's just say someone comes up to you on the street or contacts you on LinkedIn and

02:28says, look, how would you describe the state of the economy?

02:31What would you answer?

02:32And what data really defines that for you?

02:35Well, I think it's important right now, given the mixed signals we're getting from the data,

02:40to distinguish between the state of the economy and the state of the labor market.

02:44Right now, the economy is actually on track to grow above 2%, around 2.5%, according to

02:48the Atlanta Fed's Nowcast.

02:50So the economy looks to be doing pretty well.

02:53It looks to be that economic activity is continuing to expand.

02:57The labor market is still holding up, but there's more fragility in the labor market

03:00now than what we saw a year ago.

03:02So right now, payrolls have kind of slowed.

03:05We see unemployment's above 4%, still low, but above 4%, which is a meaningful benchmark

03:10for a lot of folks.

03:11So it is tougher in the job market if you're looking for a job.

03:16So that doesn't necessarily translate to economic activity slowing, but the job market has become

03:21increasingly fragile and a tougher job market, especially for job seekers.

03:25Yeah, it really, to me, almost depends on what political party you stand with, your

03:30perspective on the economy, which is just the times in which we live.

03:34So let's dive inside the labor market.

03:36What fields would you say are currently healthy and are adding consistent jobs?

03:42So the field that's really adding consistent jobs and is very healthy is health care and

03:46social services.

03:47We've seen jobs report after jobs report, while health care and social services has

03:51added the bulk of jobs in terms of just the plurality.

03:55And if you look, even with the revisions that we got for the preliminary benchmark revisions

03:59in August, it skews even more heavily towards health care and social services.

04:05Government is another sector that's consistently adding jobs.

04:08That's going to be state and local government, not necessarily federal.

04:11We'll talk about the size of the federal government, but there are a lot more state

04:13and local employees than federal employees.

04:16So state and local government has added a lot of jobs over the year.

04:20That seems to be starting to slow a bit.

04:22We saw in JOLTS yesterday that the job openings in that sector have come down a bit.

04:28But those two areas have really been supporting job growth.

04:32Another area that's been supporting job growth very heavily has been leisure and hospitality.

04:35They fully recovered from the pandemic for the most part.

04:38We saw in ADP this morning that there were only about, you know, we're sort of in that

04:4411,000 range for them.

04:48So they're not really adding a ton of jobs anymore.

04:51So things have slowed down for leisure and hospitality just because they fully recovered

04:55from the pandemic.

04:56Flip side, where are the struggles?

05:00So the struggles right now are in the places that have been struggling, you know, along

05:04this entire time.

05:05Places that have been highly exposed to this high interest rate environment.

05:08So professional and business services.

05:11In particular, we saw with the benchmark revisions that it seemed like, yes, there have been

05:14some growth, some tepid growth in professional and business services.

05:18But once we got those benchmark revisions, it seems the professional and business services

05:21actually contracted over the last year, looking back from March to March 2024, 2023.

05:27You know, tech has also been an area that struggled.

05:29What we've actually seen on LinkedIn is that tech has been leading the way towards stabilizing.

05:34So hiring is slow in tech, but it's actually started to trend kind of flat.

05:39Things in tech look much better than what they do overall in terms of how things are

05:43trending, even though hiring is slow there.

05:45Are we yet seeing jobs killed, replaced by artificial intelligence?

05:50And if not, when do you see that wave beginning?

05:53Well, with every new technology, it actually takes a long time to see any impact.

05:58We haven't really noticed any impact in terms of jobs being replaced by AI.

06:03There are increasingly jobs that are saying, you know what, employers are saying, we want

06:06workers who have AI aptitude or AI literacy skills so that then when they come in, they

06:12can help us upskill and do things more productively.

06:15But beyond that, there has been no signs of any major job losses as a result of generative

06:20AI being adopted.

06:22And the adoption at the company level actually seems quite contained.

06:25According to the U.S. Census, only about 5 percent of companies are using an only about

06:297 percent plan to use in the next six months.

06:31So are you not buying those dire predictions of hundreds of millions of jobs at some point

06:36being replaced by AI?

06:38Well, you know, there are chances that anything could happen, right?

06:42An asteroid could hit the Earth.

06:43But I'm focused.

06:45I'm not going to focus so much on tail events as economists.

06:47I know we're very bad at predicting tail events.

06:50So I tend to stay away from that as an economist.

06:54But generally speaking, it does take time to start to see job losses.

07:00And sometimes it's not to say, oh, employers are just going to lay off workers.

07:04What will happen is workers will leave.

07:05There will be attrition.

07:06We have a lot of people aging out of the workforce and they just won't replace them.

07:10They may replace them with other roles.

07:12Indeed.

07:13So what you do see are patterns, shifts.

07:17And for quite some time, job changers drove the great resignation, as we called it, which

07:22has now given way to what I understand you're calling the big stay or what economists call

07:27the big stay.

07:29What is that?

07:30Well, I would say there are a lot of folks who are using this term big stay, great stay.

07:35And it's not necessarily clear what they mean.

07:38What I think they mean is that, you know, people are not quitting as much as we would

07:42expect them to, or people are quitting at a rate that is historically low.

07:47And it turns out that that's not actually true.

07:49The average quit rate that we saw yesterday is actually above the average over the last

07:53quarter century.

07:54So we are not quitting our jobs at a significantly slower pace where it necessarily merits the

08:00title of a big stay.

08:02So let me just let me just clear this up.

08:04We're pumping the brakes on this whole big stay.

08:06It is not backed up by the data.

08:10There are some areas where it does seem to be like it does seem like quits are, you know,

08:15they're pretty low.

08:16So if you look at professional services, if you look at information, which has a lot of

08:20tech jobs, media jobs, it does seem like quits are low and they're they're not historically

08:25low compared to the last 25 years, but they're still pretty low.

08:29But everywhere else quits are not even close to historical lows in a lot of industries.

08:34They're over 50 percent.

08:36The quit rate is over 50 percent higher than the historical lows we saw after the Great

08:40Recession.

08:41So some are just using some clickbait there, perhaps.

08:43One thing we do know, some very interesting data came out from The Wall Street Journal

08:47yesterday.

08:48Since 2020, more than nine million people have immigrated here to the U.S.

08:52That's illegally and legally since 2020.

08:56That is more than three times the prior four years.

09:01What are the implications of that on our labor market?

09:04Well, one thing to remember is that in the prior four years, we had a global pandemic

09:10and borders were shut down.

09:13Especially for folks who are moving from less developed economies to more developed economies.

09:18So really, a lot of what we're seeing right now is some catch up just in terms of the

09:22number of people coming back into these, coming into these countries, coming back into those

09:26labor markets.

09:28So we have to distinguish between what's actually a catch up and sort of what's a new anomaly.

09:34There's a lot of catch up to do in terms of immigration from the labor market.

09:37And there are a lot of countries, the U.S. is one of them, that are aging and we have

09:40people leaving the workforce and the pandemic accelerated that and we need workers actually

09:45in the workforce to replace a lot of those workers who are leaving.

09:49So it's always just important to keep in mind the broader context when we're talking about

09:52immigration and the impact on the labor market.

09:54In fact, we actually need a lot of immigrants to fill certain roles.

09:57Yeah, it's a dirty little secret, isn't it?

10:00We actually need even illegal immigration here in the U.S.

10:04I want to come full circle back to where we started this conversation, which is about

10:08Jerome Powell and the Fed two weeks out.

10:10The narrative being, in your prediction, being a 25 point cut.

10:14What could really dramatically change that narrative, do you think?

10:19So I think the Fed has signaled that they're willing to react if they see job conditions

10:23deteriorating quickly.

10:25So a sharp rise in the unemployment rate, for example, unemployment jumping about four

10:29and a half percent or a sharp downturn in terms of payrolls added.

10:34So that number being negative or almost zero, it would really take a strong event like that

10:39to change what the Fed plans to do.

10:42The Fed understands that these data points fluctuate from month to month.

10:46Sometimes you'll see a strong number.

10:47Sometimes you'll see a weak number.

10:49And you can't make too much out of a single data point.

10:52You have to look at the direction the data is trending.

10:54That's what the Fed is monitoring.

10:56From their point of view, it looks like the labor market's holding up.

10:59We're also seeing that on our platform on LinkedIn.

11:01Things are slow, but they are holding up.

11:04And so the Fed isn't going to change their plans unless they see something that looks

11:07particularly extreme.

11:08Dr. Landing, as always, my friend, Corey Cantanga, head of economics for the Americas at LinkedIn,

11:14the only social media platform that matters to most of us these days.

11:17Thank you, sir.

11:18Appreciate it.

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