The Federal Reserve appears ready to resume rate cuts next week after a year-long pause, fueled by stoking recession fears over a stuttering labor market. But MRB Partners warns that a major driver behind recent weakness is Trump-era policy uncertainty, which is expected to ease in coming months, offering the labor market some breathing room.
“While recent job growth has slowed sharply, this reflects a recovery in policy certainty that is still playing out after the spike in trade tensions last spring,” MRB said. “This suggests the labor market slowdown is not yet a sign of a self-reinforcing recessionary spiral.”
The recent August employment report showed only 22,000 new jobs added, pushing the three-month average down to 30,000 monthly. Adding to further signs of a soft labor market, data earlier this week showed a major downward revision to nonfarm payrolls over the last year, cutting nearly 911,000 jobs from previously reported figures.
But MRB stressed these backward-looking revisions should not be projected forward. A key factor behind these numbers is a structural change in migration and hiring patterns. The jump in immigration in previous years had masked true hiring levels, as payroll figures included more undocumented workers. With immigration now collapsing, MRB expects lower breakeven hiring thresholds, possibly as low as 30,000 monthly, to maintain labor market stability.
MRB also highlighted that claims data remain modest when adjusted for recent anomalies, and prime-age employment and unemployment rates have behaved steadily. The main slowdown occurs with younger workers, where firms appear reluctant to hire new entrants amid policy uncertainty.
Looking ahead, MRB Partners anticipates job creation will gradually improve as uncertainty fades, though caution remains warranted given some data quality issues and external risks.
This nuanced backdrop complicates the Fed’s task as it is widely expected to resume easing next week. While recession fears and weaker job reports stoke calls for big, deeper rate cuts, the underlying context suggests the labor market is more resilient than headline numbers imply, urging a calibrated approach.
Source :
https://www.investing.com/news/economy-news/weaker-us-job-market-is-new-normalnot-recession-amid-trump-policy-uncertaintymrb-4237532
