Latest / Markets with Megan: A Quick Financial Markets Update / Fed's Dilemma Deepens: Markets React to Mixed August Jobs Report | Episode 169 | 09-06-24

Transcript

Fed's Dilemma Deepens: Markets React to Mixed August Jobs Report | Episode 169 | 09-06-24 · Markets with Megan: A Quick Financial Markets Update

• 0:01
  Megan Horneman: It's that Friday that everybody is waiting for.
• 0:03
  Megan Horneman: It's Friday, eptember 6th, and we have the August jobs report this morning.
• 0:08
  Megan Horneman: The markets are not liking this report.
• 0:10
  Megan Horneman: This is the last report that we will get ahead of the Fed's next meeting, and we're looking for confirmation of either 25 basis point rate cuts at the September meeting or possibly even 50.
• 0:22
  Megan Horneman: The report didn't really help get a whole lot of clarification.
• 0:25
  Megan Horneman: Either way, it's what we call a Goldilocks report.
• 0:28
  Megan Horneman: It wasn't too hot to say that the Fed can't cut interest rates, and it wasn't too cold.
• 0:33
  Megan Horneman: I guess you could say where they would have to come in and be aggressive with rate cuts.
• 0:37
  Megan Horneman: Let's break down what ended up happening here.
• 0:39
  Megan Horneman: So we got.
• 0:41
  Megan Horneman: The number of jobs added was 142,000.
• 0:45
  Megan Horneman: It was slightly less than was anticipated.
• 0:47
  Megan Horneman: The softness in this, though, came from the prior two months.
• 0:50
  Megan Horneman: They were revised down by 86,000 jobs, so we're continuing to see this slowing in the labor market.
• 0:57
  Megan Horneman: Now, if you look on the other side of this, though, the unemployment rate actually ticked down a little bit down to 4.2%, so that's basically priced out the Fed having to go 50 basis points at the next meeting.
• 1:10
  Megan Horneman: We think it's probably a 25 basis point rate cut.
• 1:13
  Megan Horneman: They can do that by saying that the labor market is weakening.
• 1:17
  Megan Horneman: But it's not too too weak that they have to be aggressive.
• 1:20
  Megan Horneman: Now here's the one part of the report nobody is talking about and this is something that we continue to talk about that is kind of taken a backseat in the Fed's mind.
• 1:30
  Megan Horneman: The Fed has made it clear that they're more worried about the labor market than they are in inflation right now.
• 1:35
  Megan Horneman: But we've had two reports this week, both the ISM Manufacturing and the ISM Services Index that both saw prices paid moving higher, and today we also saw prices paid moving higher.
• 1:46
  Megan Horneman: And today we also saw the wages moving higher.
• 1:47
  Megan Horneman: The expectation was for wages just to grow three-tenths in the month of August.
• 1:51
  Megan Horneman: They actually grew four-tenths and that took the year-over-year annual pace here in average hourly earnings from 3.6% to 3.8%.
• 2:02
  Megan Horneman: So they can't declare complete victory on this inflation side.
• 2:06
  Megan Horneman: They've got to make sure that they make note of that and they can't ignore where we are here.
• 2:12
  Megan Horneman: It's very, very dangerous to just focus specifically on the labor market and not realize what's going on on the inflation front.
• 2:19
  Megan Horneman: Now, when you look at where these jobs were created and lost and we actually got some goods producing jobs, construction jobs the main focus was in the private education and health care, as well as leisure and hospitality.
• 2:32
  Megan Horneman: So that's all we have today.
• 2:35
  Megan Horneman: The markets are selling off on this.
• 2:37
  Megan Horneman: Today.
• 2:37
  Megan Horneman: I think that there's a bit more concern that the economy is slowing.
• 2:42
  Megan Horneman: I also think that there was a little bit too much optimism that the Fed would aggressively cut rates in September.
• 2:48
  Megan Horneman: So we're seeing the equity markets sell off on this news as well.
• 2:51
  Megan Horneman: It's been a rough week from an equity standpoint.
• 2:54
  Megan Horneman: So if the negative September seasonality is any guide for us, we're starting to get a kind of a dose of that already here this month in September.
• 3:03
  Megan Horneman: We'll be back next week with some more economic data.
• 3:04
  Megan Horneman: We'll get a kind of a dose of that already here this month in September.
• 3:05
  Megan Horneman: We'll be back next week with some more economic data.
• 3:07
  Megan Horneman: We'll get a couple more inflation prints before we get that Fed meeting the following week.
• 3:11
  Megan Horneman: Thank you very much.