• 2 months ago
The U.S. added 142,000 jobs in August, below expectations. The unemployment rate fell to 4.2%. The cooling job market raises chances for an interest rate cut.

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00:00Did the Federal Reserve wait too long to cut interest rates?
00:08Will they have to double the size of the anticipated cut to make up for being late to the party?
00:13Just a few of the questions being asked given the state of today's job market.
00:19Corey Kantega, head of economics for America is at LinkedIn here with answers.
00:23Fortunately for us, Corey, good to see you.
00:25So was the Fed late?
00:28Will we see a 50 point cut to calm the fears?
00:32Well, there's definitely concerns about whether the Fed was late or not.
00:37But I don't think we'll be able to know that right now.
00:39It's going to take some time for that to be able to show.
00:42If we do find ourselves seeing sharper increases in unemployment, then there may be an argument
00:47that monetary policy is a little bit behind the curve.
00:50But right now, it's just too early to tell.
00:53The talk around here is if there's a 50 point cut, the markets would then suffer because
00:58they would think, oh, the Fed must know something we don't.
01:03What do you make of that theory?
01:05I think that's right.
01:06I think the Fed has been pretty clear about signaling gradual cuts like a 25 basis point
01:11cut.
01:12I think they're going to stick to that.
01:13They want to provide stability and reliability in terms of the signals that they're giving
01:17to the market.
01:18So I would be really surprised if they went for a 50 basis point cut.
01:22We'd really have to see something bad in the jobs report for that to even be on the
01:25table.
01:26We've seen some numbers come in, including ADP data and job openings, the lowest since
01:30January 2021.
01:33What's the significance of that?
01:35And how important is Friday's jobs number?
01:38Well, the job openings comes from the JOLTS report.
01:42That's the Job Openings and Labor Turnover Survey.
01:45Particularly the job opening series is quite volatile.
01:48So from month to month, it'll jump up, it'll jump down.
01:51I think what's significant about that number is that now we're below $8 million.
01:55So we've been pretty much above $8 million for the last few years.
01:59And now we're below $8 million in terms of job openings.
02:02And when there are fewer job openings, that means there's probably going to be more slowdown
02:06in hiring.
02:07There's probably less opportunities for people to add to that payroll number for job gains.
02:12So if we start to see that payroll number slow, that's going to be a signal to the Fed
02:15that you know what, maybe we're at full employment or possibly slipping below that.
02:20Sure.
02:21And Corey, there's so much data out there.
02:24Let's just say someone comes up to you on the street or contacts you on LinkedIn and
02:28says, look, how would you describe the state of the economy?
02:31What would you answer?
02:32And what data really defines that for you?
02:35Well, I think it's important right now, given the mixed signals we're getting from the data,
02:40to distinguish between the state of the economy and the state of the labor market.
02:44Right now, the economy is actually on track to grow above 2%, around 2.5%, according to
02:48the Atlanta Fed's Nowcast.
02:50So the economy looks to be doing pretty well.
02:53It looks to be that economic activity is continuing to expand.
02:57The labor market is still holding up, but there's more fragility in the labor market
03:00now than what we saw a year ago.
03:02So right now, payrolls have kind of slowed.
03:05We see unemployment's above 4%, still low, but above 4%, which is a meaningful benchmark
03:10for a lot of folks.
03:11So it is tougher in the job market if you're looking for a job.
03:16So that doesn't necessarily translate to economic activity slowing, but the job market has become
03:21increasingly fragile and a tougher job market, especially for job seekers.
03:25Yeah, it really, to me, almost depends on what political party you stand with, your
03:30perspective on the economy, which is just the times in which we live.
03:34So let's dive inside the labor market.
03:36What fields would you say are currently healthy and are adding consistent jobs?
03:42So the field that's really adding consistent jobs and is very healthy is health care and
03:46social services.
03:47We've seen jobs report after jobs report, while health care and social services has
03:51added the bulk of jobs in terms of just the plurality.
03:55And if you look, even with the revisions that we got for the preliminary benchmark revisions
03:59in August, it skews even more heavily towards health care and social services.
04:05Government is another sector that's consistently adding jobs.
04:08That's going to be state and local government, not necessarily federal.
04:11We'll talk about the size of the federal government, but there are a lot more state
04:13and local employees than federal employees.
04:16So state and local government has added a lot of jobs over the year.
04:20That seems to be starting to slow a bit.
04:22We saw in JOLTS yesterday that the job openings in that sector have come down a bit.
04:28But those two areas have really been supporting job growth.
04:32Another area that's been supporting job growth very heavily has been leisure and hospitality.
04:35They fully recovered from the pandemic for the most part.
04:38We saw in ADP this morning that there were only about, you know, we're sort of in that
04:4411,000 range for them.
04:48So they're not really adding a ton of jobs anymore.
04:51So things have slowed down for leisure and hospitality just because they fully recovered
04:55from the pandemic.
04:56Flip side, where are the struggles?
05:00So the struggles right now are in the places that have been struggling, you know, along
05:04this entire time.
05:05Places that have been highly exposed to this high interest rate environment.
05:08So professional and business services.
05:11In particular, we saw with the benchmark revisions that it seemed like, yes, there have been
05:14some growth, some tepid growth in professional and business services.
05:18But once we got those benchmark revisions, it seems the professional and business services
05:21actually contracted over the last year, looking back from March to March 2024, 2023.
05:27You know, tech has also been an area that struggled.
05:29What we've actually seen on LinkedIn is that tech has been leading the way towards stabilizing.
05:34So hiring is slow in tech, but it's actually started to trend kind of flat.
05:39Things in tech look much better than what they do overall in terms of how things are
05:43trending, even though hiring is slow there.
05:45Are we yet seeing jobs killed, replaced by artificial intelligence?
05:50And if not, when do you see that wave beginning?
05:53Well, with every new technology, it actually takes a long time to see any impact.
05:58We haven't really noticed any impact in terms of jobs being replaced by AI.
06:03There are increasingly jobs that are saying, you know what, employers are saying, we want
06:06workers who have AI aptitude or AI literacy skills so that then when they come in, they
06:12can help us upskill and do things more productively.
06:15But beyond that, there has been no signs of any major job losses as a result of generative
06:20AI being adopted.
06:22And the adoption at the company level actually seems quite contained.
06:25According to the U.S. Census, only about 5 percent of companies are using an only about
06:297 percent plan to use in the next six months.
06:31So are you not buying those dire predictions of hundreds of millions of jobs at some point
06:36being replaced by AI?
06:38Well, you know, there are chances that anything could happen, right?
06:42An asteroid could hit the Earth.
06:43But I'm focused.
06:45I'm not going to focus so much on tail events as economists.
06:47I know we're very bad at predicting tail events.
06:50So I tend to stay away from that as an economist.
06:54But generally speaking, it does take time to start to see job losses.
07:00And sometimes it's not to say, oh, employers are just going to lay off workers.
07:04What will happen is workers will leave.
07:05There will be attrition.
07:06We have a lot of people aging out of the workforce and they just won't replace them.
07:10They may replace them with other roles.
07:12Indeed.
07:13So what you do see are patterns, shifts.
07:17And for quite some time, job changers drove the great resignation, as we called it, which
07:22has now given way to what I understand you're calling the big stay or what economists call
07:27the big stay.
07:29What is that?
07:30Well, I would say there are a lot of folks who are using this term big stay, great stay.
07:35And it's not necessarily clear what they mean.
07:38What I think they mean is that, you know, people are not quitting as much as we would
07:42expect them to, or people are quitting at a rate that is historically low.
07:47And it turns out that that's not actually true.
07:49The average quit rate that we saw yesterday is actually above the average over the last
07:53quarter century.
07:54So we are not quitting our jobs at a significantly slower pace where it necessarily merits the
08:00title of a big stay.
08:02So let me just let me just clear this up.
08:04We're pumping the brakes on this whole big stay.
08:06It is not backed up by the data.
08:10There are some areas where it does seem to be like it does seem like quits are, you know,
08:15they're pretty low.
08:16So if you look at professional services, if you look at information, which has a lot of
08:20tech jobs, media jobs, it does seem like quits are low and they're they're not historically
08:25low compared to the last 25 years, but they're still pretty low.
08:29But everywhere else quits are not even close to historical lows in a lot of industries.
08:34They're over 50 percent.
08:36The quit rate is over 50 percent higher than the historical lows we saw after the Great
08:40Recession.
08:41So some are just using some clickbait there, perhaps.
08:43One thing we do know, some very interesting data came out from The Wall Street Journal
08:47yesterday.
08:48Since 2020, more than nine million people have immigrated here to the U.S.
08:52That's illegally and legally since 2020.
08:56That is more than three times the prior four years.
09:01What are the implications of that on our labor market?
09:04Well, one thing to remember is that in the prior four years, we had a global pandemic
09:10and borders were shut down.
09:13Especially for folks who are moving from less developed economies to more developed economies.
09:18So really, a lot of what we're seeing right now is some catch up just in terms of the
09:22number of people coming back into these, coming into these countries, coming back into those
09:26labor markets.
09:28So we have to distinguish between what's actually a catch up and sort of what's a new anomaly.
09:34There's a lot of catch up to do in terms of immigration from the labor market.
09:37And there are a lot of countries, the U.S. is one of them, that are aging and we have
09:40people leaving the workforce and the pandemic accelerated that and we need workers actually
09:45in the workforce to replace a lot of those workers who are leaving.
09:49So it's always just important to keep in mind the broader context when we're talking about
09:52immigration and the impact on the labor market.
09:54In fact, we actually need a lot of immigrants to fill certain roles.
09:57Yeah, it's a dirty little secret, isn't it?
10:00We actually need even illegal immigration here in the U.S.
10:04I want to come full circle back to where we started this conversation, which is about
10:08Jerome Powell and the Fed two weeks out.
10:10The narrative being, in your prediction, being a 25 point cut.
10:14What could really dramatically change that narrative, do you think?
10:19So I think the Fed has signaled that they're willing to react if they see job conditions
10:23deteriorating quickly.
10:25So a sharp rise in the unemployment rate, for example, unemployment jumping about four
10:29and a half percent or a sharp downturn in terms of payrolls added.
10:34So that number being negative or almost zero, it would really take a strong event like that
10:39to change what the Fed plans to do.
10:42The Fed understands that these data points fluctuate from month to month.
10:46Sometimes you'll see a strong number.
10:47Sometimes you'll see a weak number.
10:49And you can't make too much out of a single data point.
10:52You have to look at the direction the data is trending.
10:54That's what the Fed is monitoring.
10:56From their point of view, it looks like the labor market's holding up.
10:59We're also seeing that on our platform on LinkedIn.
11:01Things are slow, but they are holding up.
11:04And so the Fed isn't going to change their plans unless they see something that looks
11:07particularly extreme.
11:08Dr. Landing, as always, my friend, Corey Cantanga, head of economics for the Americas at LinkedIn,
11:14the only social media platform that matters to most of us these days.
11:17Thank you, sir.
11:18Appreciate it.

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