In today's economic outlook, we are going

to discuss the latest labor market release

and what it means for the trajectory of the US economy.

We're gonna take this opportunity to walk us

through the underlying details

that really drive the narrative

that this is a fundamental moment for the economy

and a shift in the economic trajectory.

So to really dive into that, I'm gonna start

by looking at the headline metrics

that had an overall impact on the market

day of the data release.

We saw non-farm jobs rise by just 22,000.

That was well below the 75,000 consensus estimate

of be totally transparent.

It was below our own estimate, which was closer to 62,000.

Now the unemployment rate also ticked up from 4.2% to 4.3%.

It was really only part of the story.

So when we look at broader measures of unemployment

and underemployment, for example,

the U six rate from the Bureau of Labor Statistics,

which includes not only those who are unemployed

but also discouraged workers as well as those

who are working part-time for economic reasons,

there was a jump up to 8.1%,

which is actually the highest level we've seen since

October, 2021.

Uh, this isn't just a week month of data.

The release in conjunction

with the significant downward revisions last month implies

that we're seeing sustained deceleration

that began in April.

And the three month average job creation is now running at a

low of around 29,000.

And that's pretty much recession level low.

That's really, really dour

for the overall economic environment.

Perhaps the most shocking is

that June employment was also revised down into negative

territory showing the labor market has been weaker than we

initially anticipated, even facing the first period in terms

of month over month contraction since 2020.

Now, what makes this particularly concerning is the fact

that it's not just one industry

really leading the charge here.

It's actually the breadth of the industries

that are contributing to the unfortunate jobs reading

that we just received, as well as

that we've been receiving now for a few months

with those downward revisions.

And this tells us that the softening isn't really more

of a onetime anomaly and one month anomaly,

but it's more of a trend

that is proving unfortunately persistent.

And we see this particularly when we dive in to the sector

by sector breakdown.

So to look at this data more, more in detail,

what we see is that there's a clear divide between

what people need and what businesses are willing

to invest in and how we see

that playing out in the overall employment numbers.

So to start with the resilience side,

essential services added 58,000 jobs

and this was really led by healthcare

and education with 46 positions added.

Now this makes sense because people still need medical care,

they still need education regardless

of economic uncertainty.

We also saw a bit

of a bright spot on on the headline level when we look at

consumer discretionary sectors like leisure and hospitality

and retail where we saw 38,500 jobs added.

But this likely reflects continued recovery towards pre

pandemic employment levels rather than a response

to robust consumer demand as both

of these sectors remain in terms of employment well

below their pre COVID trends.

So looks very positive on, on first pass,

but when we actually dive into the underlying data trends,

see that it's more about normalization,

less about robust performance, when we shift

to a more troubling aspect, the productive economy, we see

that there is some contraction,

meaningful contraction that's occurring.

So goods production and trade shed over 30,000 jobs.

Um, unfortunately, manufacturing, wholesale, trade

and construction all declined on a month over month basis.

We also saw business infrastructure services.

The, the backbone of corporate activity

cut about 21,000 positions

with professional business services

really leading the decline there.

Now, unsurprisingly,

government also pulled back cutting 16,000 jobs on net.

So government is a conglomerate of state, federal,

and local, but the cut was primarily driven

by the federal work force reductions.

Now, when we see this sort of sector by sector analysis,

when we see the overall arching picture,

what really comes top of mind is the fact

that this is not just one

or two sectors that is facing hardship.

This is really broad based

and what we see with the private sector numbers in the

government numbers is that private sector weakness

is coming at a time or in tandem with also fiscal restraint.

So neither the private

or public sphere is really making up in terms of job games

or um, overall spend.

When we look at the economy as a, as an aggregate,

this pattern becomes exactly what we would anticipate

with an economic inflection point, right?

We have essential services which is quite robust.

We have some interesting dynamics when we look at overall

consumer consumer spending or discretionary dynamics.

And then of course we have a lot

of month over month contraction

and other employment metrics which are really core

to the overall production side of the economy.

Taken together. This labor market data really implies

that the Federal Reserve is in a very

tricky position, right?

So last month we talked a lot about

what we're seeing in the overall trajectory when it comes

to the inflation numbers.

We see really sticky services inflation.

We're seeing reaccelerating goods, inflation.

Neither of those things are great to see.

On the other hand, we now have back

to back labor market reports, which show quite a lot

of weakness, especially when it it

comes to our hiring numbers.

And this puts the Fed in a really difficult position

because they have a dual mandate.

They not only need to seek price stability,

they also need to sort of ensure that we are as close

to full employment as we can get.

So what that really means in practice is

that we want both price stability as well

as labor market resiliency.

Powell specifically noted in his Jackson Hole speech

that the shifting balance of risks may warrant adjustments

to the Federal Reserve's policy stance.

And that balance has absolutely shifted decisively in these

last two labor releases.

The sectoral breakdown

that we've just discussed really reinforces this case.

We're seeing employment contraction

and business investment heavy areas

and production while only really essential services are

holding up in a meaningful way.

And this pattern typically requires monetary support

to prevent a deeper economic retreat.

So even with core inflation running at 3.1%,

which is a full percentage point above the fed's, 2% target

the magnitude of labor market softening

that we're seeing creates a very clear case

for accommodation from the Federal Reserve.

Now, as mentioned, the Fed's dual mandate requires 'em

to balance price stability with full employment.

So today's report suggests that they're going to

be in a position where they'll feel the need

to prioritize supporting the labor market, especially given

that wage growth remains relatively modest at 3.7%.

So why I call that out is

because if we saw a pickup in wage gains, this would

or could potentially create concern that if we cut rates

or if we're a little bit too accommodative,

we may get ourselves embroiled in a wage price spiral.

The wage data that's coming out currently

and the trend that we're seeing doesn't

support this concern.

And so this puts the Federal Reserve in a little bit of a,

a better position to be accommodative moving forward.

Now, regardless of all of this,

as I noted a few a few minutes

before, it doesn't change the fact

that the Fed is in the midst of a

complex policy puzzle, right?

They're sort of facing some mild statuary concerns.

We've been talking about this a lot, especially since May

where we have a weakening labor market,

we have reaccelerating inflation, we have

below trend economic growth.

And what that looks like

for the Federal Reserve is quite a tricky picture

as they have to be very intentional in

how they thread the needle for monetary policy.

Now the Fed needs

to support employment while managing inflation expectations

as well as how the labor market continues

to play out over the next several months.

Third, the US economy has fundamentally shifted momentum.

Most likely we are not in a recession at this time,

but we are clearly in a deceleration phase that is going

to require policy support.

So the soft landing that we were on track

for nine months ago,

absolutely evolving into something a bit more complex,

a meaningful slowdown with stagflationary elements

that are absolutely going to test policymaker's ability

to balance competing objectives

for companies navigating this transition.

What this looks like is focusing on operational efficiency

and cash preservation while positioning

for opportunities in resilient sectors.

So the sectoral divide

that we've seen today suggests businesses should prioritize

investments in essential services

where they can will deferring non-critical expansion

until economic momentum stabilizes. In practice,

To be successful in any of these things, we really need

to be closely monitoring real time data, engaging in active

scenario analysis,

and then also being open to acting very dynamically

and changing our overall strategy based on how the economy

continues to unfold in front of us.

If you are interested in undertaking any of these strategies

or would like a little bit of a refresh on

what board can offer you, please feel free to go

to board.com and request a demo.

With that, I just wanna say thank you for your time.

It was a absolute pleasure

and I look forward to talking with you all again next month.

Love.