TS Lombard with the note:
- Slower payroll employment would be a lagged reflection of slower first half
- Reversing surge prices and still high wage growth will renew the expansion
- Economy will not slip into recession – it will need a strong push for the Fed
Even if August employment looks like the revamped ADP guesstimate of a 132,000 increase, it is way too soon to say this is anything other than a lagged impact from the first half slowdown. Also keep in mind that employment gains in this range are nevertheless normal relative to this cycle’s age and population flows, and therefore mean nothing in terms of relieving upward pressure on wage settlements. Add to all this the Fed’s bias to assess economic data using threemonth moving averages, and it is hard to see Powell backing away from his Jackson Hole rhetoric to raise rates 50BP at the upcoming meeting, instead of 75BP. The FOMC could, of course, do just that, but they would then have a tough time convincing market participants the next time around that this time they really, really mean it.
