Latest / Markets with Megan: A Quick Financial Markets Update / Wages Grow 3.2%. But Is That Enough? | S3 E157 | 08-07-26

Transcript

Wages Grow 3.2%. But Is That Enough? | S3 E157 | 08-07-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: There is a lot to unpack in that uh jobs report that we got this morning.
• 0:04
  Megan Horneman: It's Friday, August the 7th, and this is Markets with Megan.
• 0:07
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• 0:09
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• 0:11
  Megan Horneman: Also share with any of your friends, family, colleagues, anybody who likes to look at those headline economic data pieces that we get and then dig down and see what it means for your investments.
• 0:22
  Megan Horneman: What does it mean for the economy?
• 0:23
  Megan Horneman: Well, this morning we got one of the most anticipated reports we get of every month, and that's the jobs report.
• 0:29
  Megan Horneman: This is the jobs report for July, and it was a surprise, a big surprise to the downside, unfortunately.
• 0:36
  Megan Horneman: The expectation was that the US economy created 80,000 jobs in the month of July, which was already relatively weak.
• 0:43
  Megan Horneman: But in fact, the data came in with uh the economy actually lost 23,000 jobs.
• 0:49
  Megan Horneman: And the prior two months actually were also revised lower.
• 0:53
  Megan Horneman: So very weak on that headline perspective.
• 0:55
  Megan Horneman: But let's dig into some of the details within that report.
• 0:58
  Megan Horneman: There was strength still in the construction and manufacturing side.
• 1:01
  Megan Horneman: So it's still adding jobs there.
• 1:03
  Megan Horneman: And that's primarily that AI build out that we're getting.
• 1:06
  Megan Horneman: Um, trade that was down, and also the financial sector was down.
• 1:10
  Megan Horneman: But where we really saw some of the noise in this was in leisure and hospitality, that's actually that was actually lower.
• 1:17
  Megan Horneman: It could have something to do with the, you know, the World Cup winding down the month of July.
• 1:22
  Megan Horneman: Maybe tourism wasn't as um optim wasn't as good as was anticipated, so they had to lay off some of those workers.
• 1:29
  Megan Horneman: We also saw government jobs decline.
• 1:31
  Megan Horneman: That had a lot to do with the local governments, though, because there is a lot of volatility that we see in the um in the summer months within education.
• 1:39
  Megan Horneman: Now, when we look at the unemployment rate, though, that did fall.
• 1:43
  Megan Horneman: So it is kind of difficult to understand.
• 1:46
  Megan Horneman: Oh, if we shed jobs, how come the unemployment rate fell?
• 1:49
  Megan Horneman: Well, the unemployment rate fell to 4.1%.
• 1:51
  Megan Horneman: It's this, um, it is actually the lowest level that we've seen in about a year.
• 1:56
  Megan Horneman: And that's because there was a big reduction in the workforce.
• 2:00
  Megan Horneman: So when you leave the workforce, that unemployment rate can actually go down even with a shedding of jobs because there's less people in that pool of workers.
• 2:08
  Megan Horneman: The labor force participation rate actually fell to 61.4%.
• 2:14
  Megan Horneman: And that is if you take out the pandemic-related noise that we had in these labor market data pieces, that's the lowest level that we've seen since 1976.
• 2:24
  Megan Horneman: Um, what we make of that, we're not sure.
• 2:26
  Megan Horneman: It's it's it's one month, so we'll we'll see if this becomes a trend.
• 2:30
  Megan Horneman: But we do know that there were some big layoffs over the past couple months.
• 2:34
  Megan Horneman: Some of these layoffs in some of the bigger companies we talked about at Microsoft.
• 2:38
  Megan Horneman: If these companies are offering out severance packages or people just waiting on the sidelines before they go back and re-enter the workforce after they've been laid off, we're not sure yet, but that could be what's impacting that labor force participation rate.
• 2:51
  Megan Horneman: Again, this is one month we're not overly concerned about the labor market as a whole.
• 2:56
  Megan Horneman: Um, the labor market, some of the other indicators still show that it's strong.
• 3:00
  Megan Horneman: It might not be as strong as it was, but we're not looking at recessionary type of levels here with the employment.
• 3:07
  Megan Horneman: One thing that concerns us from the spending perspective is that average hourly earnings actually grew at a lower pace than was anticipated and lower than last month.
• 3:17
  Megan Horneman: They're growing 3.2% on a year-over-year basis.
• 3:20
  Megan Horneman: So the real wages, if you take into consideration how elevated inflation's been, real wages have actually been negative for the fifth consecutive month.
• 3:32
  Megan Horneman: So we know the consumers have been resilient.
• 3:34
  Megan Horneman: We're just not sure how much long they can continue when we see these types of data numbers.
• 3:39
  Megan Horneman: So, what does this mean for the markets?
• 3:40
  Megan Horneman: What does it mean for the Fed?
• 3:42
  Megan Horneman: Um, the equity markets didn't mind this because it means that the Fed actually has a little bit of room.
• 3:47
  Megan Horneman: Maybe they don't have to raise rates in September.
• 3:49
  Megan Horneman: We think it's too soon to say that they're that a September rate hike is off the table because, again, this is one piece of what the Fed looks at.
• 3:58
  Megan Horneman: And keep in mind the labor, the unemployment rate is low.
• 4:01
  Megan Horneman: They still have a lot of inflation reports that will come out, and that's gonna dictate what the Fed ends up doing in September.
• 4:08
  Megan Horneman: Um, bond yields are down.
• 4:10
  Megan Horneman: Uh, that's again because of the pricing out of maybe the possibility of Fed rate hikes.
• 4:14
  Megan Horneman: So the markets don't mind this too much.
• 4:15
  Megan Horneman: Um, I guess you could say it's kind of like a Goldilocks scenario, not too hot, not too cold when you look at this report.
• 4:21
  Megan Horneman: So, what does that mean?
• 4:22
  Megan Horneman: Maybe the Fed stays on hold.
• 4:23
  Megan Horneman: We still think we're gonna wait for all that inflation.
• 4:25
  Megan Horneman: That's gonna be the telling, the telling story.
• 4:28
  Megan Horneman: That's all we have today.
• 4:29
  Megan Horneman: If you want a history of our podcast, you can go to marketswithmegan.fm.
• 4:32
  Megan Horneman: Thank you.