Jobs and Jogging in Boston

Episode Summary

Executive Summary: The panel judged August 2022 payrolls as a strong but moderating jobs report: 315,000 jobs added, higher participation, and a rise in unemployment for positive reasons. The group saw labor supply improving, wage growth still too hot, and job openings elevated, implying the Fed remains focused on inflation and still faces a 50 vs. 75 bp September rate decision.

Main Topics: August payroll report assessment (Priority: 5/5): The team agreed the report was broadly solid: job growth remained healthy, revisions matter, and the month was likely stronger than the initial print suggests because August is often noisy and revised up. Labor force participation and supply (Priority: 5/5): A key positive was the increase in participation, especially prime-age women and overall labor-force inflows from outside the labor force, which helps relieve labor shortages and wage pressure. Wage growth and hours worked (Priority: 4/5): Average hourly earnings growth stayed elevated around 5.2% y/y, and average weekly hours fell slightly, reinforcing the view that labor market conditions are easing only gradually. Job breadth and sector composition (Priority: 4/5): Job gains remained broad but diffusion weakened; leisure and hospitality contributed a smaller share than usual, suggesting some normalization after outsized pandemic-recovery gains. Fed policy implications (Priority: 5/5): Speakers agreed the jobs report alone likely won’t settle the September FOMC decision; CPI, financial conditions, inflation expectations, and wage data remain decisive for whether the Fed hikes 50 or 75 bps. Recession probabilities and macro outlook (Priority: 3/5): The group slightly lowered recession odds for the next year, reflecting improving labor supply and still-strong demand, though they emphasized the Fed could still engineer a downturn. Data quirks and measurement issues (Priority: 3/5): The discussion highlighted August seasonality, response-rate problems, benchmark revisions, and the GDP vs. GDI debate, including a labor-income proxy that may imply GDI is overstated.

Key Arguments: Payroll growth slowed from prior months but remained strong at 315,000, which the panel saw as consistent with the Fed’s goal of cooling labor demand without triggering immediate labor-market weakness. The rise in unemployment to 3.7% was viewed as constructive because it reflected more people entering the labor force rather than job losses. Prime-age employment-to-population increased to 80.3%, a sign that labor-market slack remains limited and recovery is near full employment. August is typically noisy and often revised higher; the panel expects upward revisions to the initial August payroll estimate. Leisure and hospitality contributed a much smaller share of private job growth than usual, but still added jobs; this may reflect seasonal softness or a broader slowdown in that sector. Wage growth at 5.2% y/y remains too high for the Fed’s inflation objective, even if it is no longer accelerating. The FOMC’s next move depends more on inflation, financial conditions, and inflation expectations than on this employment report alone. A broadening labor force and higher participation are crucial because stronger labor supply can relieve wage pressure without requiring a sharp collapse in demand. The panel’s recession odds eased modestly, but they still see a meaningful chance of recession because aggressive Fed tightening could still break the expansion.

Data Points: Net job gains: 315,000 - August 2022 payroll employment increase, judged slightly above expectations but slower than recent months Unemployment rate: 3.7% - Rose from 3.5% as labor force participation increased Labor force participation rate: Increase in August - Key sign of improved labor supply and people re-entering the labor force Prime-age employment-population ratio: 80.3% - Rose from 80.0%, cited as Mark’s favorite slack indicator Average hourly earnings growth: 5.2% y/y - Still too hot for the Fed, though not accelerating materially Average weekly hours: -0.1 hours - Minor blemish in the report, suggesting some softening Leisure and hospitality share of private job growth: 10.1% - Marissa’s derived statistic showing a lower-than-usual contribution from the sector Leisure and hospitality job gains: Over 30,000 - Still added jobs, but not a statistically significant monthly contribution in the panel’s view Prime-age women labor force participation: 77.2% - Dante’s statistic; second-highest reading ever and above pre-pandemic levels Consumer confidence labor-market view: 48% said jobs are plentiful - Chris’s statistic from the Conference Board survey, down from 55% at the start of the year Job openings (JOLTS): 11.2-11.3 million - Used to illustrate that labor demand remains very high Three-month average payroll growth: 378,000 - Cited to argue underlying job growth may still be closer to 350-400k than 250k Recession probability: 49% - Marissa’s updated 12-18 month recession odds, down from 50%

Pivotal Quotes: "the Fed is getting what they want." — Ryan Sweet: Ryan’s summary of the jobs report, arguing that job growth and wage growth are cooling while participation improves "I think it's a great report." — Mark Sandy: Mark’s overall judgment after hearing the group’s assessment of the August payrolls and labor-market details "the labor market is still strong enough. I'm not really breaking the economy. I can afford to go a bit harder or be hawkish here early on" — Chris Dorites: Chris explaining why the jobs data could still support a 75 bp Fed hike in September

Implications: The labor market is cooling only gradually, which is supportive of a soft landing but still leaves the Fed focused on inflation. Near-term attention shifts to CPI, financial conditions, and wage data for the September rate decision.