Still waiting for U.S. labor market to turn

At least when it comes to temporary help services, U.S. labor markets are already weakening.

^{*seasonally adjusted}

^{Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 9/06/23}

Before jumping to conclusions, though, it is worth keeping in mind that monthly U.S. jobs data can be fickle, seasonal adjustments are tricky and even aggregate data is prone to numerous revisions, often quite extensive ones. For example, August hiring was robust with 187,000 jobs created, but a downward revision of 110,000 jobs over the past two months suggests a bit less momentum than initially thought. Meanwhile, labor supply unexpectedly increased in August as suggested by the labor force participation rate which rose from 62.6% to 62.8%. However, not all people who entered (or returned to) the labor force found their way into employment: the unemployment rate rose from 3.5% to 3.8%, a clear "dovish" signal for central bankers. As a result, more supply is being met with somewhat less demand, which may explain lower wage growth: average hourly earnings rose "only" 0.2% month on month (m/m), down from 0.4% m/m in June and July.

For investors, the key point may prove to be that the latest jobs and inflation data takes some pressure off the Fed, as it supports a data-dependent "on hold" at the upcoming September FOMC meeting. Potentially, this could even pave the way towards the Fed further increasing rates no further this year, making the next major discussions all about how much rates will be cut in 2024 – once inflation is sufficiently close to 2%.   After all, consumers have become increasingly reliant on income rather than excess savings to finance consumption. Further headwinds are on the horizon. Increased use of credit at higher interest rates, upcoming student loan repayments, combined with a further decline in wage growth and a further softening of labor market conditions could prompt consumers to moderate their spending plans by more than recent strong numbers on personal consumption suggest.