The prime-age LFPR (men & women) rose to 83.48% in August, the highest since May 2002. The prime-age EPOP remained at 80.9% last month, the highest since April 2001. This remains a secularly tight labour market. Trend payroll job growth is around 65k. Expecting the Fed to cut rates because payrolls growth has slowed misses the point. The US is fast approaching capacity, and jobs growth is becoming constrained by structural, rather than cyclical factors.
The market reaction to the payrolls report was telling. The bond market is sending a message: moderating payrolls growth is of secondary importance. Long bonds are far more concerned about perpetual (large) fiscal deficits, political gridlock in Washington, the possibility of a second Trump term, and climate change. Trump, for now, has no formidable challenger for the Republican nomination.
WTI crude oil rose to $85.55/barrel on Friday, the highest since November 16th 2022. The breakout above the recent August 9th high is potentially significant. Crude oil prices have now risen 6.3% YTD, even with negative sentiment around China reaching fever pitch over the past couple of weeks. The explosion of pessimistic commentary around China may be an important contrarian signal, and behoves us to keep an open mind. Iron ore futures have broken out higher. Industrial metals barely registered a decline in August and jumped on Friday.
Globally, the spillovers from the change of YCC in Japan have been very orderly, so far. But Prime Minister Kishida is coming under pressure to raise spending and is readying another set of fuel subsidies. Additional subsidies will help keep consumer spending elevated, embedding current inflationary pressures, weakening the yen further.
