Jay Powell is worried about the job market. For good reason as the employment data that have been traditionally forward looking have been weak for a while now.  The temporary labor measures have been terrible for more than a year.  Temps had always been considered the most reliable of historical early warning signs but a bust of an indicator so far this time.  The Household Survey, from which the unemployment rate is derived, has been far weaker than the Nonfarm Payrolls for well over a year.  We stand on the verge of breaking through “The Sahm Rule” which states that if the unemployment rate (rolling average) rises by 50 bps from the trough, a recession looms. Job openings peaked over two years ago, and so on.

But here we are with Initial Jobless Claims rolling along at very low levels.  Not only that, but there are indications that employment may be firming.  As we learned from today’s “JOLTS”, job openings have levelled out, quit rates stopped falling (quits are a sign of labor market confidence) and have been flat since November ’23. Hirings are on the rise again.  Earlier this week, we saw a manufacturing ISM above 50 for the first time in almost a year and a half, suggesting that the most cyclical parts of the economy are not only holding up but perhaps even getting stronger. 

Away from employment, the recent uptick in CPI and PCE measures, as well as commodity indexes approaching two-year highs and oil at $85 compound the concerns that cutting would be a mistake.  The Fed does not want to create a situation where they cut and long rates move sharply higher, which is a distinct possibility if market participants smell a Fed unwilling to fulfill their “price stability mandate”.

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