Labor market check-in: slowing, not stalled
Summary
Last week, a weak jobs report came in at a fraction of what was expected. There was also a wave of corporate announcements: Kraft Heinz announced it will split into two companies by the second half of 2026, Google can keep its Chrome browser, and AI-company Anthropic raised $13 billion at a valuation that is nearly triple its valuation just six months ago. The Trump administration had a tough week in the courtroom facing a series of legal setbacks. The justice department opened an investigation into Fed Governor Lisa Cook over alleged mortgage fraud. The market is back to expecting 75 bps worth of rate cuts before year end, with the first 25 bps cut in the September meeting.
For the second week in a row, the S&P 500 reached a record level on Thursday before declining on Friday. Last week, the S&P returned 0.4%, which brings the YTD return to 11.2%. The 10-year Treasury yield decreased by 13 basis points to end at 4.10% on Friday.
Labor market
U.S. nonfarm payrolls rose by 22,000 in August, coming in below expectations. Revisions brought July’s gain to 79,000 and June’s to -13,000, averaging 29,000 over three months. Government jobs fell by 16,000, mainly in federal employment. Private-sector gains were led by healthcare (+47,000), leisure and hospitality (+28,000), and other services (+12,000), while durable goods (-19,000), professional services (-17,000), and wholesale trade (-12,000) declined. The unemployment rate rose to 4.3% as labor force participation edged up to 62.3%. Average hourly earnings increased 0.27% month-over-month, with stronger wage growth in utilities, construction, and transportation, but weaker gains in retail, education, and information.
Tough week in court for the Trump administration
A federal appeals court found most of President Trump’s tariffs were unlawful but allowed them to remain temporarily for Supreme Court review. An injunction blocked the expedited deportation of Venezuelans, and another judge ruled the use of National Guard troops in Los Angeles violated federal law. The administration was also ordered to restore over $2 billion in research grants to Harvard, a move deemed retaliatory and unconstitutional, though the government plans to appeal. Additionally, the deportation of unaccompanied Guatemalan minors was halted pending further review. These cases signify escalating legal challenges facing the administration, with several likely headed to the Supreme Court.
The week ahead
Markets will continue to weigh whether a weakening labor market offsets the benefits of possible Fed rate cuts. The Fed faces tough decisions ahead of its September 17th meeting, which will also reveal the updated “dot plot” of economic projections. Key data releases next week include small business optimism, PPI, CPI, jobless claims, and consumer sentiment. Notably, PPI and CPI are both expected to rise 0.3% month-over-month, with CPI up 2.9% year-over-year.
U.S. Treasuries
U.S. Treasuries indicate yields for on-the-run U.S. Treasury bills, notes, and bonds, which are typically the most recently auctioned and most liquid issue with a maturity closest to the stated tenor. These are commonly used for pricing fixed-rate debt at origination and for calculating yield maintenance.
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SOFR swap rate (annual/annual)
SOFR swap rate is a swap where a counterparty pays a fixed-rate on an annual, Act/360 basis and receives SOFR, reset daily and paid annually on an Act/360 basis. This rate is a common benchmark for pricing fixed-rate CMBS and other fixed-rate loans.
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Disclaimers
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