Inflation In-Focus After an Anemic Jobs Report

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, September 8th. The August jobs report released Friday morning showed non-farm payrolls rose by just 22 ,000, well below the forecasted 75 ,000, and much weaker than July's revised 79 ,000. The unemployment rate rose to 4.3 % from 4.2 % as expected, but is the highest rate since 2021. The June non-farm payroll numbers were revised down by 27 ,000, showing that 13 ,000 jobs were lost, while 6 ,000 jobs were added to the July data. That follows a huge change to the July report when the government chopped 258 ,000 jobs from the May and June data.

1:04President Trump subsequently fired BLS Commissioner Erica McIntyre for August 1st, the day the report was released. The share of unemployed individuals for more than 27 weeks has risen to 25.7%. Average hourly earnings rose 0.3 % over the previous month and 3.7 % compared to last year. The health services sector was the biggest job creator, adding 46 ,000 workers in August. Losses were seen in durable goods and business services. Manufacturing payrolls fell by 12 ,000 jobs, which means they've contracted for the fourth straight month. The last time this happened was at the beginning of 2020. Americans between the ages of 16 to 24 are having the hardest time finding jobs, evidenced by an unemployment rate of 10.5 % for the age group.

1:56This is the highest it's been for this group since the pandemic. It's not likely to get better soon because last week's JOLTS report showed there were more unemployed people than job openings for the first time since 2021. Also, the S &P 500 Human Resources and Employment Services sub-index has bounced mostly between 250 and 270 over the last year, reflecting the growing weakness in the jobs market. If the labor market doesn't improve, the employment services industry is likely to struggle. It was another weak report and reinforces the case for the Fed to cut rates by 25 basis points later this month, said Cooper Howard, Director of Fixed Income Strategy at the Schwab Center for Financial Research.

2:40Last month's number was also revised lower, and June's revision became negative. At Friday's close, the CME FedWatch tool showed unanimous consensus for a rate cut of at least 25 basis points at the Fed meeting later this month. FedWatch also predicts a 77 % chance of an additional cut in October. Treasury yields plunged Friday after the anemic jobs report, leading mortgage rates to their largest one-day drop in over a year. The 30-year bond yield fell 9 basis points to 4.77%, while the 10-year note dropped 7 basis points to 4.09%, and the 2-year note yield sank 6 basis points to 3.53%.

3:25This week's economic calendar includes important inflation news. Wednesday's producer price index, or PPI, will be one to watch, as last month's higher-than-expected PPI surprised investors and added to the stagflation narrative. On Thursday, investors get the Consumer Price Index, or CPI, which will provide insights into how much producers are able to pass on their higher costs to the consumer. Investors will also be closely watching the preliminary release of the September University of Michigan survey of consumers on Friday for more evidence that stagflation worries are brewing. August's data showed a sharp decline in consumer sentiment, while long-run inflation expectations rose.

4:08Another report like that could unnerve investors and the Fed. Gold futures traded above$3 ,600 per ounce on Friday, an all-time high. They're up sharply from recent lows below$3 ,400 amid growing global fiscal concerns and uncertainty around U.S. tariffs. Recent U.S. inflation data raised worries that with central banks in a generally easing phase, prices may be less under control and currencies might sink. Gold is traditionally perceived as a safe haven when the dollar and other currencies are less strong. The European Central Bank meets next week, and analysts surveyed by Reuters expect policymakers to refrain a second time from another rate cut after euro area inflation ticked up slightly last month to 2.1%, but chances of a Fed rate cut this month are very high, per futures trading, with labor data sagging even as inflation remains stubborn.

5:09Gold also got some support from central bank buying Barron's noted this week. China's central bank has been buying gold as it tries to diversify foreign currency holdings beyond the U.S. dollar. AI investors will be looking at earnings from Oracle and Adobe this week for more insights into real-world demand and monetization of AI. Kroger's earnings due Thursday will be another highlight for market watchers. Investors will be looking to see how the company is coping with tariffs and a cautious consumer spending environment. A supermarket operator may provide more evidence of consumers' shift toward at-home dining with the labor market cooling and inflation weighing on budgets.

5:53Large individual stock movements on Friday included Broadcom rocketing 16 % before pulling back to close up 9.41%. The move was in reaction to the chipmaker reporting earnings that topped analysts' estimates. The company revealed it's helping ChatGPT maker OpenAI design and create an AI chip that could challenge NVIDIA's processors. Tesla's stock also rose 3.64 % Friday after the EV giant asked shareholders to approve a new$1 trillion pay package for CEO Elon Musk. The proposal incentivizes Musk to reach several strenuous benchmarks over 10 years. If successful, Musk's stake in the company will grow to 25%.

6:42Lululemon, on the other hand, plummeted 18.58 % on Friday after slashing its earnings outlook and forecasting a$240 million tariff hit. The athletic apparel retailer also saw same-store sales sink 4 % Eurovier in the second quarter, and CEO Calvin McDonald warned of rising business costs on a call with analysts. Six out of the 11 S &P 500 sectors ended Friday in the red, with financials and energy dropping 1.44 % and 1.66 % respectively. Real estate and materials, meanwhile, helped lift the blue-chip index as investors balanced economic fears with rate-cut hopes. The Dow Jones Industrial Average fell 220.43 points or 0.48 % to 45 ,400.86.

7:36The S &P 500 Index sank 20.58 points or 0.32 % to 6 ,481.50, and the Nasdaq Composite dropped 7.3 points or 0.03 % to 21 ,700.39. For the week, the Dow Jones Industrial Average fell 0.32%, the S &P 500 gained 0.33%, and the NASDAQ rose 1.14%. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash marketupdate or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

8:33For important disclosures, see the show notes and schwab.com slash market update podcast.