Good job numbers and a bad attitude

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Ethan Wu (0:36)

Thank Pushkin.

Some investors, and this is certainly true of us financial journalists, have just a strong negativity bias. But to ruthlessly cop the title of today's Unhedged newsletter written by Robert Armstrong, it's time to smile, damn it. The US labor market, for those of you worried about inflation, it is cooling off a bit. Today on the show, we talk about the latest from the labor market, what it means for US investors, and because we are financial journalists, we have a few things to worry about too.

This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I am reporter Ethan Wu here in the New York studio, joined at long last by Katie Martin, market's editor, who has returned from her months long sojourn to God knows, where did you go, Katie? I have no idea.

Katie Martin (1:23)

Greece, I made my own special contribution to the Greek economic comeback.

Ethan Wu (1:27)

I know you've been bullish. How was your vacation, Katie? Excuse me, how was your sabbatical?

Katie Martin (1:33)

Delightful, thank you.

I did some island hopping around Greece. Quite a lot of Americans there.

Ethan Wu (1:38)

Yeah, well, it's a cheap vacation, right? I've heard that's the main appeal.

Katie Martin (1:42)

It's cheap, it's beautiful. It's kind of very exotic if you're American, I imagine. And yeah, just charming, delightful.

Ethan Wu (1:48)

It's good to have you back, Katie. It's good to have you back. The little digs in America. Much needed, much needed. Well, today, Katie, we are talking three labor market indicators that kind of capture where we are. Payroll growth, the quits rate and wage growth. And then we'll talk a bit about what it means for investors and what else lies on the horizon. Starting out with payrolls, I mean, this is the big marquee number.

The August jobs numbers, which came out on Friday, showed the US economy adding 187,000 jobs last month. You know, I'd call that relatively strong and healthy if we were in a normal economy, which we certainly are not.

But yeah, overall, not bad. I think it's spot a lot of talk of Goldilocks, not too hot, not too cold.

Katie Martin (2:30)

Yeah, and you know, because people in markets are terrible human beings, I'm only joking, but because they're terrible human beings, they don't want too many jobs. They don't want the jobs market to be absolutely on fire. They want it to be kind of nice and healthy and simmering along, but not just adding gangbusters numbers of jobs every month, because then it looks like the economy is overheating.

So this set of numbers, this data hits that spot.

It's good, but it's not too good. It's got some elements that are slowing down, but they're not cratering. So there's something for everybody in here. But as you say, it's goldilocks, right? The porridge is not too hot, it's not too cold, it's just right. It very much adds to the soft landing narrative that's really taking hold in markets now.

Ethan Wu (3:12)

Yeah.

And just to add a little bit of context there, Carl Ricciadana, who's a great economist over at BNP Paribas, has made the point that 100,000 is the average historical pace at which low payrolls growth translates to rising unemployment. So from the perspective of markets, what you want is payroll growth that's above that 100,000 threshold. So payroll growth that's going to sustain consumption, keep the economy chugging along, but also not payrolls growth so hot that it has negative implications for perhaps inflation.

Obviously that's been the main worry recently. So this 187,000 number is about exactly where I think markets would like it, right? It's at a pace that suggests inflation pressure may be diminishing, but well above the level, 87,000 jobs above the level at which you'd expect unemployment to rise. It's a good place to be overall.

Katie Martin (4:02)

Exactly. It just feels like a nice, comfortable place.

Ethan Wu (4:06)

So that's payrolls. The next number is the quits rate. It's the percentage of workers in the monthly job turnover survey that are deciding voluntarily to leave their job.

This absolutely surged after the pandemic began. All this talk about the Great Resignation. Well, the Great Resignation is over. The quits rate is back at 2.3%, exactly where it was in late 2019