For now, very weak payrolls that limited layoffs and reduced labor supply call to mind this idea of economic splintering.

It's jobs Friday, and we just got a look at one of the most anticipated reports of the year. After last month's weak payroll numbers, the markets were watching closely to see how this report would land. Marta, what do we see this month? What's your first take on this one?

So the key data to watch in this report was payrolls. Estimates were for seventy five thousand jobs added to payrolls, but we saw a notably weaker number at twenty two thousand. We also saw another downward revision to prior months, though not as severe in July. So taken together, no doubt these are weak results.

And unemployment picked up to four point three percent. So what does that combination mean for September? Does it make a rate cut more likely?

Powell said in his Jackson Hole speech that a policy pivot was on the offering.

With that forewarning, another weak number today, it's hard to imagine we aren't looking at a cut in September. We will see another inflation report before the FEND meeting, and the Fed officials will review that closely. But my guess is at this point, they will deem the labor market weakening sufficiently as to warrant lower rates. There's even some talk of a larger fifty basis point or half percentage point cut. That makes the upcoming inflation report especially abhorrent.

And, Marta, you've also been talking a lot about that balance between labor supply and labor demand. We know that demand has fallen. That's showing up in those payroll numbers, but supply has fallen too. So walk us through what's driving that.

So declining labor supply relates to the Trump administration's immigration policies, which have reduced the number of potential employees, particularly in certain industries. The way the Fed gauges the interplay between labor demand and labor supply is with the unemployment number. If the number of employees stayed the same but payrolls dropped, we would see unemployment rate tick higher. If the number of potential employees is also falling, there is better balance between the two.

Yeah. So, basically, we're seeing fewer jobs being added, but also fewer people in the labor pool. And that helps explain why that unemployment rate hasn't really moved as much as we might otherwise expect given those weak payrolls. Yes.

That's correct. And, Samara, let's take all this into account. I want your overall impression of the report. We had payrolls at twenty two thousand, the unemployment rate at four point three percent.

Did you see any areas in particular of weakness or strength that stood out to you?

So here's something interesting. Over the course of twenty twenty five, two areas of strength for payrolls have been health care and state and local government. Other areas have frankly been more anemic. In this report, we continue to see broad based weakness, perhaps even more so, while state and local government no longer looks as strong as it did prior to the restatement.

Health care continues to contribute to payrolls, but modestly less this month.

And I think that brings us back to that no hire, no fire market that you've been describing for quite some time. The labor market isn't running hot, but not collapsing either. Some people say, Marta, that the market actually wants a soft report because it helps ensure a rate cut in September. But do you think this report was too soft?

Arguably. Though the initial reaction and the equity market was too much, honestly, higher to your point. I'd say the report reinforces the idea that the labor market continues to cool and cool more rapidly than it appeared just a few months ago. So going forward, I'll be watching layoffs more closely than ever to see if this labor market weakness becomes more acute.

Given the strong earnings that we've seen, that is not my base case, but it's certainly a downside risk. For now, very weak payrolls that limited layoffs and reduced labor supply call to mind this idea of economic splintering. In other words, very different economic experiences depending on the factor at hand. In the labor market, for example, people who have jobs may feel relatively secure, but people who don't have jobs may find it increasingly difficult to find those opportunities.

Marta, great analysis as always.

Thank you so much.

A lot to keep an eye on as the focus shifts now to next week's CPI report. We're gonna be back on Thursday to get Marta's take on what that inflation report means for policy and markets. Have a great weekend.