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Jobs report: Why August's data is 'rock solid' news for the Fed

According to the August jobs report, 187,000 U.S. jobs were added this past month. While the unemployment rate ticked up and average hourly wages came in line with previous projections, is this the data the Fed has been waiting to see? The Conference Board Chief Economist Dana Peterson and RSM Chief Economist Joe Brusuelas sit down with Yahoo Finance Live to talk about how regulators and consumers may interpret this latest jobs print.

"This plays into exactly where the Fed wants this jobs data to go and sets up nicely for a September pause," Brusuelas says, warning on "significant problems" in labor supply and growing "financial stress" in the economy.

Similarly, Peterson also considers the impact of recent inflation prints and how the Fed should hike accordingly: "We had yesterday's inflation data, which weren't really going in the direction the Fed wants. I think the Fed may still want to wait for those long lags to kick in and come back in November and maybe hike then."

This post was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: We're joined by Dana Peterson who is the Conference Board chief economist and Joe Brusuelas who is the RSM chief economist.


Great to have you both here in studio with us, and helping us break down some of these figures here this morning.

Dana, I'm going to begin with you.

If you look at this report, what is this set up for the decision that the Fed has in front of it in September and perhaps even November to anything that jumps out to you?

DANA PETERSON: Well, what really jumped out to me is that you still have this three parts of the labor market where you have the former pandemic darlings cutting, which included transportation, warehousing, and information, and also temporary help.

But also, you still see strength in those areas like leisure and hospitality and health care.

Meanwhile, everyone else is just sitting tight.

So I think this is still the same situation that we've seen.

Also, there were downward revisions in the payrolls for the last two months.

So the Fed should look on that favorably.

But certainly, we had yesterday's inflation data, which weren't really going in the direction that the Fed wants.

So I think the Fed may still want to wait for those long lags to kick in and come back in November, and maybe hike then.

RACHELLE AKUFFO: And Joe, Rachelle here.

I want to ask you-- I mean, obviously, people had their different estimates going into this.

This is a pretty bumper report here.

What are your big takeaways?

JOE BRUSUELAS: So this is another rock solid American jobs report.

We see labor-- we see hiring cooling, we see wages cooling.

We saw 110,000 downward revision to the past two months.

This plays into exactly where the Fed wants this jobs data to go.

And it sets up nicely for a September pause.

Now, in terms of the big takeaway, just a little quick math here.

When I looked at the higher wage component, 174,000 of the 187,000 jobs created were goods producing, construction, manufacturing, private health care, so private education.

So we still are hiring at a pretty strong clip here.

Look, we've got a significant problem in terms of labor supply in this economy.

Even as the economy slows later this year, you're going to continue to see unemployment bounce between 3.6% and 4%.

We're just not going to see that big jump in unemployment like we've seen during past slow periods.

So this is going to be very interesting in terms of the policy interpretation and the forward guidance.

Look, lastly, out in the real economy, financial stress is actually up a bit.

And the long period of rate hikes is really beginning to take that pound of flesh away from financial actors.

Firms are really having a problem finding capital to invest.

This is going to be an ongoing narrative, I think, as we enter into the final stretch of 2023.

BRAD SMITH: What about financial stress for individuals and households, Dana, as well?

I mean, I'm looking at one of your quotes from the Conference Board and the monthly reading of consumer confidence here.

How does this play in the employment situation and employment conditions into consumer's mindsets right now?

DANA PETERSON: Well, I think it's definitely weighing on the consumer.

In our consumer confidence measure, they were less ebullient about jobs.

They're saying jobs are not as much available now and they're worried about the future.

And hence, they are also worried about their finances and income.

And I think that all coalesces into a bad story for consumers.

Many of them are running out of that excess savings.

It's probably going to be depleted in the next few months.

And they're spending using credit cards.

And we're seeing delinquencies rising and even among banks, especially small banks charge-offs are rising.

So consumers are definitely under stress.

And let's not forget there's also the student loan issue, where at least they're going to have to start paying the interest starting in October.

So slower income growth, higher debt, and payments for student loans suggest that we're going to see slower consumer spending.

And I think consumers are starting to internalize that, at least in what their sentiments are