Where Is the US Economy Headed: Jobs Data & Fed Minutes

Key data from the US was released this week, with jobs and the FOMC minutes taking centre stage amidst key corporate earnings releases and ahead of the Jackson Hole Economic Policy Symposium. 

Here’s what you need to know about the status of the world’s biggest economy:

Is the US Labour Market Struggling?

On Wednesday, 21 August, the Bureau of Labor Statistics’ (BLS) preliminary annual benchmark review of employment data was released. The report revealed that the world’s largest economy’s job growth during the past year was “significantly weaker” than the projections. It also showed that March had 818,000 fewer jobs than initially reported, marking the biggest downward revision in about 15 years. 

These less-than-rosy revisions largely came from the private sector, namely the professional and business services industry. Moreover, other sectors that showed weakening included the leisure and hospitality, manufacturing, and information industries. (Source: CNBC)

Could This Signal a Recession?

As this is the US labour market’s largest downward revision since 2009, it should not be surprising to learn that this might’ve raised worries and ignited recession fears. Still, before tackling these concerns, which currently do not have an answer, it is important to take note of the following:

When the large downward revision occurred in 2009, a recession was declared before the data were released. In addition, GDP in 2009 showed negative growth for four consecutive quarters. In other words, there were more signs of a recession in 2009. In addition, jobless claims were surging at that time. 

Nowadays, however, no recession has been declared, jobless claims have remained unchanged since 2023, and GDP has been positive for 8 straight quarters. As such, the chances of a recession seem to be far. Still, only time will tell what lies ahead for the US economy.

Why Does the BLS Revise Data?

Data revisions are not a new phenomenon. They occur frequently, especially when more comprehensive information becomes available. This is done to provide a clearer and more accurate overview of the economy.

What Do Economists Think?

Hearing what economists say could also help decipher the data better. According to FWDBonds’ chief economist, Chris Rupkey, “It is important for markets to remember that these are not job losses, it is just that the job count was never that high.” He also added that “the economy apparently did not need those phantom ‘lost’ workers because robust real consumer expenditures powered very strong [economic] growth in the second half of last year.”

Goldman Sachs’ economists also noted that the BLS “may have overstated the revision by as much as half a million.” 

In other words, the majority of economists point to the fact that this might have been a “counting issue” rather than “a red flag about the health of the labour market.”

FOMC Minutes: Which Route Will the Fed Take?

In addition to the jobs report, the US FOMC minutes were released on Wednesday, 21 August. The minutes provide a detailed summary of the Fed’s rate decision meeting and are released three weeks after every Fed meeting. Interestingly, the minutes can potentially shift the markets.

Wednesday’s minutes release provided a detailed record of the Fed’s last meeting on 30-31 July, during which the central bank decided to maintain benchmark rates unchanged at a 23-year high amidst rate cut expectations. 

The minutes pointed towards a “likely” rate cut in the upcoming 17-18 September meeting, adhering to the rate cut expectations that have materialised this year. Furthermore, the minutes showed that most Fed members “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”

Additionally, despite the late rate decision showing that most Fed members favour holding rates, the minutes revealed that many members favoured dovish rate cuts. “Several [meeting participants] observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.”

All in all, the minutes showed a more dovish monetary policy stance, thus increasing the likelihood of September rate cuts. 

How Did the Markets React?

The dovish minutes and the big downward US payroll revisions boosted rate-cut expectations, which in turn caused many Wall Street indices to trade higher. 

The S&P 500,  the Nasdaq (NQ), and the Dow Jones Industrial Average (USA 30) rose by 0.42%, 0.57%, and 0.14%, respectively. 

As the week continues with other releases and events like earnings, home sales, PMI, and the Jackson Hole Symposium, it will be interesting to see how the markets will proceed. 

Conclusion

The week was an eventful one for the US economy, as labour data and the Fed’s FOMC minutes were released, providing traders, economists, and consumers with much-needed insights about the state of the US economy and the markets as we near the end of August. 

What else lies ahead for the world’s biggest economy is yet to be determined.