Episode summary
US Payrolls Grew in September, But Jobless Rate Shows Fragility
Bloomberg Surveillance
· · 5 min · Guests: Jeffrey Cleveland
Summary
September payrolls improved after a weak August, but Jeffrey Cleveland said the more important signal was the labor market’s fragility. He pointed to August revisions turning negative, a three-month average of only about 62,000 jobs, and an unemployment rate that he thinks is already heading toward 4.5% or 4.6%. That, in his view, keeps the possibility of a Federal Reserve rate cut on the table.
He argued the report is not a recession signal by itself because wages are still rising at about 3.8% annually and aggregate income is supporting consumer spending. Still, he said recent layoff announcements and real-time data through October and November suggest the labor market is weaker than the official September snapshot shows.
On inflation, Cleveland said the Fed should be less worried than it is, estimating PCE around 2.4% year over year excluding tariff effects and expecting disinflation next year, especially from housing services. He argued tariffs are a one-time price-level shock, not an enduring inflation trend, and said a quarter-point cut could still matter by pulling down yields, borrowing costs, and mortgage rates.
Key takeaways
- Jeffrey Cleveland said the August payroll revision to -4,000 and a three-month average near 62,000 show a still-meager labor market.
- Cleveland expects unemployment to rise from 4.4% toward 4.5% or 4.6%, which he says keeps a December rate cut in play.
- He said wage growth of about 3.8% means consumers still have spending power, so the report is not a recession signal.
- Cleveland estimates inflation excluding tariffs at about 2.4% year over year and thinks PCE can return to 2% or below next year.
- He said a 25-basis-point cut would matter through lower front-end rates, ten-year yields, corporate borrowing costs, and mortgage rates.
Notable quotes
“So you had some downward revisions that the three month average is still pretty meager, 62,000 or so”
“So I think this does give keep the possibility of a rate cut definitely on the table”
“So overall, aggregate income, the consumer still has some spending wherewithal”
“If you exclude the tariffs and we don't think tariffs are an enduring inflation feature, it's it's a one time pop to the price level”
“it will have an impact. It's not just the 25 basis points of fine tune. It's more than that”
How the episode opens
I think the biggest thing I notice here is the August was slightly negative after revisions. So you had some downward revisions that the three month average is still pretty meager, 62,000 or so. And the direction of travel on the unemployment rate, it appears to be going higher.
So we're now in 4.4, I think headed to 4.5, 4.6. So I think this does give keep the possibility of a rate cut definitely on the table. You see that reaction initially in the bond market, particularly on the front end.
But that's the initial read and pull. The single statistic here, which Cleveland, of course alludes to, is a survey and change in nonfarm payrolls for August is 22,000. The reality, rather, and it's a negative statistic.
Yes, -4000 on a revision and the August report that's emotional that negative numbers emotional. Absolutely. How about on the looking at the wage market here, Jeffrey?
You know, on an annualized basis, average annual earnings up of about 3.8%, that holds pretty steady. So if you've got a job, you're getting paid for it, it seems like. Yeah, I think that's the positive take here.
You still have some modest payroll growth on a three month average. You still have wage growth. So overall, aggregate income, the consumer still has some spending wherewithal.
So this is not a doom and gloom type scenario. Sorry for the bears out there. It's going to create a little more uncertainty over the next few months as we continue to digest this.
But it's it's not a, you know, slam dunk data report that points to a recession. Yeah. So what do you think?
What are some of the real time data telling you about kind of kind of where we are today with the labor market?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us payrolls
- unemployment rate
- fed rate cut
- treasury yields
- jobless claims
Companies and tickers mentioned
- Payden & Rygel
- Oxford Economics
Watch the episode
Watch “US Payrolls Grew in September, But Jobless Rate Shows Fragility” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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