U.S. Labor Market Activity: Slowing, Not Weakening

Kevin Flanagan

September 8, 2023

As part of WisdomTree’s Investment Strategy group, Kevin serves as Head of Fixed Income Strategy. In this role, he contributes to the asset allocation team, writes fixed income-related content and travels with the sales team, conducting client-facing meetings and providing expertise on WisdomTree’s existing and future bond ETFs. In addition, Kevin works closely with the fixed income team. Prior to joining WisdomTree, Kevin spent 30 years at Morgan Stanley, where he was Managing Director and Chief Fixed Income Strategist for Wealth Management. He was responsible for tactical and strategic recommendations and created asset allocation models for fixed income securities. He was a contributor to the Morgan Stanley Wealth Management Global Investment Committee, primary author of Morgan Stanley Wealth Management’s monthly and weekly fixed income publications and collaborated with the firm’s Research and Consulting Group Divisions to build ETF and fund manager asset allocation models. Kevin has an MBA from Pace University’s Lubin Graduate School of Business, and a B.S in Finance from Fairfield University.

While the Fed has emphasized that future policy decisions—i.e., the potential for another rate hike—would be based on the “totality” of upcoming economic data, make no mistake, employment reports go to the front of the line. There is a variety of labor market-related data to choose from, with the monthly Employment Situation release offering the most encompassing insights. Taking in the totality of the recent jobs numbers, I come to the conclusion that labor market activity looks to be softening, not weakening. While some market observers may not draw a distinction between these two descriptions, you can bet the Fed, as well as the money and bond markets, does.

U.S. Total Nonfarm Payrolls – 3-Month Moving Average

U.S. Total Nonfarm Payrolls – 3-Month Moving Average

Obviously, the first place to look at is the level of new job creation, as measured by total nonfarm payrolls. For August, overall payrolls rose a slightly better than expected +187,000. That headline number in and of itself could be considered a relatively good outcome, considering the economy has endured 525 basis points worth of Fed rate hikes since last March. However, in a less well-known stat, the prior two months’ tallies were revised downward by a combined -110,000.

In order to smooth out monthly volatility, a good practice is to look at three-month moving averages, and that is where a more visible slowing trend in new hiring becomes apparent. The most recent figure on that front put new hiring at +150,000, a decline of -31,000 from July’s +181,000 reading. In fact, as the top bar chart illustrates, the three-month moving average has been consistently edging lower throughout all of this year.

This is where it gets a little interesting, though. If you look at the three-month trend numbers from 2017 through 2019 (pre-COVID-19), the current level is not really all that bad and only 27,000 below the monthly average for that entire three-year period. 

Another measure of employment that is closely followed is the jobless rate. In August, the unemployment rate rose +0.3 pp to 3.8%. However, this was due to a +736,000 surge in the civilian labor force, typically viewed as a good sign for labor market activity. Civilian employment (the alternate job creation gauge) actually rose a solid +222,000, but that was not enough to offset this large inflow into the labor force.


The expectation was for no Fed rate hike at this month’s FOMC meeting, and the August jobs data does nothing to change that narrative, but we do have one more CPI print before the September 20 convocation.

Either way, “higher for longer” with no rate cuts on the horizon remains the Treasury market backdrop.

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