At the Fed meeting this past week, Chair Powell acknowledged the progress on inflation had stalled and policy would need to remain restrictive for the foreseeable future. That much wasn’t a surprise, but one thing I did notice that he said was his stance on the labor market. Specifically, he said that an “unexpected weakening” could accelerate the process of rate cuts this year. “It would have to be meaningful, and get our attention, and lead us to think that the labor market was really significantly weakening for us to want to react to it,” Powell said. Is Friday’s non-farm payroll report, which came in below expectations and saw the unemployment rate tick up to 3.9% an early indication that it’s beginning?
To be fair, non-farm payrolls missed by 75,000 in April, but ADP employment released earlier in the week beat by about 17,000. The unemployment rate is still below 4%, but it’s also up 0.5% from its recent low, a mark which usually suggests that the labor market could be turning. When you consider that job openings have been trending lower and layoff announcements have been increasing with this, it’s very reasonable to ask if the labor market is indeed turning. I don’t think it’s necessarily broken at this point, but I do believe the best times are probably behind us.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.