Slower Faster

The August employment report indicates a potential slowdown in the U.S. economy, with nonfarm payrolls increasing by 142,000, but significant downward revisions for June and July resulting in a modest net gain of 56,000. Specifically, the core payroll measure, excluding sectors heavily influenced by government policies, rose only 25,000, with just 31,000 added over the past three months.

Government and education & health care jobs accounted for 37% of net payroll increases since February 2020. While civilian employment saw a monthly rise of 168,000 in August, it remains lower than a year ago, with full-time jobs down by a million.

Additionally, the Labor Department revised down payroll growth estimates by 818,000 for the year ending March 2024, highlighting discrepancies between payroll and civilian employment figures. Upcoming inflation data is expected to show a modest increase of 0.2% in consumer prices for August, suggesting a potential drop in PCE inflation to 2.3%, moving closer to the Fed's 2.0% target.

This economic deceleration is attributed to tight monetary policy, with M2 money supply growth slowing significantly since its peak in early 2022. The Fed is expected to cut rates at its remaining meetings this year, but potential risks remain regarding the balance between money supply growth and inflation control.