Today’s jobs report: What it means for the Fed and politics

Friends,

Today’s jobs report is being looked at carefully for two reasons:

First, the Fed meets again on September 18. It has kept interest rates high to hobble inflation, but inflation has been (more or less) tamed, so the big question is whether it will cut interest rates by a quarter of a point (25 basis points, in Wall Street lingo) or a half a point (50 basis points). The latter will obviously give the economy a bigger push.

Second, most Americans believe the economy is the most important issue in the upcoming presidential election — now in its final stretch — and a very good jobs report can be helpful to Kamala Harris to reassure voters; a bad jobs report could be helpful to Trump to make his case that Biden-Harris have failed on the economy.

So which is it? Well, let’s take a closer look.

Employers added 142,000 jobs in August, which is fewer than economists had expected — a slight disappointment, for the second consecutive month. And June and July’s job numbers were revised downward — bringing the three-month average to 116,000 jobs. That’s fairly bad news. (If the economy is healthy, it should be creating 200,000 jobs a month.)

But wait. The unemployment rate dropped to 4.2 percent, after rising to 4.3 percent in July. And average hourly earnings rose 0.4 percent in August from the previous month, or 3.8 percent from a year earlier. All good news.

But wait again. If you add in everyone who’s working part-time who’d rather be working full-time, the broader unemployment rate ticked up to 7.9 percent in August, the highest level since October 2021. Bad news.

Yet hold on. The average workweek also increased slightly, indicating that workers are getting more hours. Good news.

The percentage of people in their prime working years (ages 25 to 54) who were working went down a bit in August, to 83.9 percent. But that’s hardly a cause for concern because the July rate of 84 percent was the highest since 2001. That’s pretty good news.

Bottom line? This is largely a steady-as-she-goes jobs report. The economy doesn’t seem to be sliding toward recession, nor is it expanding as fast as it could. We’re still on course for a “soft landing” — with little inflation and almost no cause for alarm about the economy cooling too quickly.

My betting is the Fed will cut interest rates by a quarter of a point when it meets on September 18 rather than by a half of a point.

As to politics, this report should have no bearing. Trump will of course accuse Harris of poor economic management, but that’s absurd. Not only was she not in charge, but Harris can credibly claim to be part of an administration that’s brought inflation down from double digits while continuing to expand job growth — a far better record than Trump had when he was president.