August Jobs: Pretty Good

Episode Summary

Executive Summary: The hosts assessed August jobs data as broadly “pretty good”: payrolls rose 142,000, unemployment fell, wages stayed solid, and hours worked improved slightly. But downward revisions, weak manufacturing and professional services, and rising multiple jobholding show the labor market is cooling. They see a soft landing as the base case, with modest recession risk and Fed cuts likely, though market pricing implies more aggressive easing than they expect.

Main Topics: August jobs report: solid but not great (Priority: 5/5): The panel agreed the report was better than feared, with decent payroll growth, a lower unemployment rate, and broad enough gains to support a soft-landing narrative, though not strong enough to feel truly robust. Labor market weakness beneath the surface (Priority: 5/5): Participants noted signs of deterioration in manufacturing, temp help, professional/business services, part-time work for economic reasons, and multiple jobholding, suggesting some households are stretching to maintain income. Revisions and seasonal noise (Priority: 4/5): Downward revisions to prior months worried the hosts somewhat, but they also discussed August’s history of upward revisions and the possibility that hurricanes and other temporary factors distorted the monthly readings. Fed cuts and market expectations (Priority: 5/5): The group debated why Fed futures price in a large chance of a 50 bps cut and substantial easing thereafter. They leaned toward the view that markets are pricing tail-risk/recession insurance rather than a base-case outlook. Inflation, wages, and the policy path (Priority: 4/5): Wage growth at 3.8% y/y and 0.4% m/m was seen as consistent with 2% inflation if productivity remains strong. The hosts argued the Fed can cut, but probably should do so gradually because the neutral rate is uncertain. Election implications (Priority: 4/5): The panel said the current economic setup likely helps Harris more than Trump: stable labor markets, lower gasoline prices, and easing mortgage rates support the incumbent party’s case, while inflation remains the key political variable. Recession odds and overall outlook (Priority: 4/5): Most hosts held recession odds around 20%-25% through end-2025, while Chris remained higher at 33%. They see a soft landing as more likely, but with enough downside risk to stay cautious.

Key Arguments: Payroll growth of 142,000 is slower than hoped, but still consistent with a soft landing when combined with a lower unemployment rate and decent wage gains. Downward revisions matter because they imply underlying labor market momentum is softer than the first print suggested. August often gets revised upward historically, so the weak first print may be partly seasonal noise rather than a true inflection. Manufacturing and professional business services weakness, plus rising multiple jobholding and part-time work for economic reasons, indicate some labor-market softening. The Fed likely has room to cut, but 50 bps would usually signal something is breaking; a quarter-point step is more consistent with a controlled slowdown. Market pricing for aggressive cuts likely reflects fear of recession tail risk and not just a mild slowdown. If gasoline and mortgage rates stay lower and real incomes keep rising, the economic backdrop should favor Harris politically. Current recession odds are elevated but not high enough to override the soft-landing base case for most of the panel.

Data Points: Payroll employment change: 142,000 - August nonfarm payrolls increased, slightly below expectations but still positive. Unemployment rate: 4.2% - Ticked down in the August household survey, easing concerns about a steady rise. Manufacturing employment change: -24,000 - Largest sectoral surprise on the downside in August. Leisure and hospitality job gains: 46,000 - Strongest-growing industry in August. Public sector job gains: 24,000 - Government employment remained a solid positive contributor. Revisions to prior two months: ~60,000 downward combined - Initial payroll estimates for the prior two months were revised lower. Three-month average payroll growth: ~115,000 - Average monthly job growth through August after revisions. Average August revision since 2019: just over 60,000 upward - Historically, August payroll first prints are often revised up. Average weekly hours: slight uptick - A small improvement after recent weakness; viewed as a mild positive. People working part-time for economic reasons: up significantly year over year - Seen as evidence of underlying labor-market slack. Private industry diffusion index: back above 50 - Recovered after falling below 50 in July; considered a healthier breadth signal. Multiple jobholders: about 5.1% - Chris cited this as a sign of people piecing together enough work hours. Average hourly earnings, m/m: 0.4% - Wage growth was stronger on the month and not viewed as alarming. Average hourly earnings, y/y: 3.8% - Seen as compatible with 2% inflation if productivity stays strong. Fed futures odds of 50 bps cut: about 60% / 40% split - Market pricing leaned somewhat toward a half-point September cut, but not decisively. End-of-year Fed cuts priced by markets: 100-125 basis points - The market expects substantial easing over the next several meetings. 10-year Treasury yield: flat to slightly down - Bond market reaction was muted after the jobs report. 10-year minus 2-year Treasury spread: positive by 2-3 basis points - The yield curve has uninverted slightly, a historically sensitive phase. Gasoline price threshold: $3.50 per gallon - Mark said prices above this level tend to trigger more consumer attention and favor Trump politically. Pennsylvania Wawa regular gasoline: $3.30 per gallon - Cited as an example of easing fuel prices. 30-year fixed mortgage rate: about 6.35% - Used in the election discussion as still high but moving lower. WTI crude oil: below $70 per barrel - Lower oil prices support the view that gasoline prices should stay subdued. Recession odds (Dante): 25% - His estimate through end-2025. Recession odds (Marissa): 25% - She kept her estimate unchanged. Recession odds (Chris): 33% - He remained more cautious than the others. Recession odds (Mark): 20% - He lowered his estimate from 25% back to 20%.

Pivotal Quotes: "I would say things were pretty good." — Dante D’Antonio: His overall assessment of the August jobs report. "It’s the most dangerous time in the economy, right?" — Chris Dorites: He explained why modest slowing can still feel risky near a soft landing. "If that holds out for another two months, that’s a positive for Harris." — Mark Zandi: His view that labor-market stability and lower inflation would aid the Democratic candidate.

Implications: Listeners should expect a gradual cooling labor market, not an imminent collapse. The Fed likely cuts soon, but probably in measured steps. For markets and politics, lower inflation and stable jobs support a soft landing and likely help Harris.