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The much-anticipated US jobs report answered some important questions about the state of the labour market. Yet by also leaving some important issues outstanding, it will not serve as the much needed outside catalyst to resolve both the policy stalemate on Capitol Hill and the increasingly visible tug-of-war in financial markets.
The narrow message of the jobs report came through loud and clear in four monthly numbers. Despite all the headwinds facing the economy, its inherent dynamism and entrepreneurship — plus a positive one-off influence from census hiring — led to buoyant job creation (1.4 million) and a sharp fall in the unemployment rate (from 10.2% to 8.4%). This was coupled with an increase in both labor force participation and the equally important employment-to-population ratio.
Pulling the lens back a bit provided a second, less reassuring message. The pace of improvement in the labour market continues to moderate. Monthly job creation has fallen from a three-month average of 3 million after gains resumed in the wake of the economic sudden stop in March related to the Covid-19 shock to monthly rates of 1.7 million in July and 1.4 million in August.
This is an issue because of the third, more macro message in the jobs report. The overall labor market situation remains worrisome. Almost 30 million Americans depend on some form of unemployment assistance at a time when the data from the Bureau of Labor Statistics show that the share of the long-term unemployed is growing.
These three different messages are problematic when it comes to breaking the stalemate in the fiscal policy debate in Washington. Both Democrats and Republicans will find enough in the jobs report to support their competing positions on the relief bill languishing in Congress. For Republicans who favour a smaller relief package, the report’s favorable narrow message provides ammunition, especially because the unemployment rate was yet another data point that beat the consensus expectations of economists and Wall Street analysts. Democrats will point to the other two messages to press for a much bigger relief package.
A similar tension exists in financial markets as a result of the tug-of-war between investors who are thinking in relative terms and those starting to look more closely at absolute valuations, especially as awareness grows about how option trading activity has impacted the price of both individual stocks and overall market indexes. Specifically, relative-value arguments that favour stocks will point to the data that beat expectations. The “deltas†are what matters.
—Bloomberg