In a note to clients on Monday Jefferies analysts said the long-awaited moment of a significant move in the labor market in the US had arrived, indicating a potential Federal Reserve rate cut before the regular meeting in September.
They say recent data revealed clear evidence that the US labor market was weakening at a time when inflation was still higher than the Federal Reserve’s target of 2%.
The July labor market report for showed an increase of only 114K in nonfarm payrolls, the second lowest since Dec. 2020.
Analysts noted that 71% of this growth was in social assistance and healthcare sectors and government. Nonfarm payrolls actually dropped by 1.16M on a non-seasonally adjusted basis if the net birth-death model adjustment is excluded.
Jefferies said their household survey also showed a weakening trend, with total employment in July gaining only 67K month-over-month and up just 57K year-over-year, the lowest growth rate since Aug. 2010. The unemployment rate has risen to 4.3%, the highest level since Oct. 2021.
Wage growth also decelerated, and average hourly earnings slowed to 3.6% in July from 3.8% in June. The quarterly employment cost index, a crucial gauge of wage pressures, decelerated from 4.2% in Q1 to 4.1% year-over-year in Q2 2024.
