We are forecasting a 45,000-job increase in employment when the U.S. August jobs report is released on Friday.
But because of seasonal adjustment factors that have affected the past several August jobs reports, there is a downside risk to our forecast.
If the initial estimate is at or near our forecast, that mild gain should result in the Federal Reserve cutting its policy rate by 25 basis points at its meeting on Sept. 17.
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We anticipate that the unemployment rate will climb to 4.3% while average hourly earnings will advance by 0.3% on the month and by 3.7% from one year ago.
The August report is shaping up to be one of the more consequential in some time. It will directly affect the Federal Reserve’s decision on whether to cut rates or continue to evaluate the direction of inflation, which is moving in the wrong direction.
Inside the report, private education and health care will most likely see an increase below its three-month average of 67,000, which would mean that the narrative around a frozen jobs market excluding education and health care will continue to dominate discussion of the labor market.
Our forecast implies that private sector hiring, while slowing down, is at least sufficient for now to keep employment conditions stable.
We think that 50,000 is the new breakeven rate of monthly jobs growth. Given the 11,000 baby boomers retiring every day and the adverse impact of restrictive immigration policies on the labor supply, policymakers need to evaluate whether the economy is generating sufficient jobs to keep employment conditions stable.
Beyond that, one should expect weakness in the goods-producing, manufacturing and construction sectors that are affected by tariffs and immigration policies.
One area of concern is the three straight months of declines in professional and business services, which is a bellwether around whether we get a rate cut in September.
Given the revised data, we now know that government hiring has declined for the past six months, and we expect that reduction to continue.
Anything below 50,000 should lean toward a 25 basis-point rate cut at the Fed meeting.
Anything at or above 100,000 will most likely support waiting until the fall or early winter to cut rates.
The gray area in between will then cause Fed members to look more closely at the September inflation data in the consumer price index and personal consumption expenditures index.
