UBS' Chief Economist Paul Donovan discusses how the latest US employment report may offer a weak and unreliable signal on the labor market, with expectations for flat unemployment and sub-100,000 payrolls. He argues that US labor data are crucial because consumers are cutting their savings rate to sustain spending as prices rise and real incomes come under pressure.

Weak jobs data and consumer resilience

"The US employment report adds a rather unreliable narrative to the US labor market data. Expectations are for a dull report, with an unchanged unemployment rate and a sub-100,000 non-farm payrolls number."

"However, the range of estimates is particularly scattered. When job creation is this weak, the composition of the workforce may distort the average hourly earnings data without saying anything about wage growth."

"US labor data matters because in the Wile E. Coyote trajectory consumers need to cut their savings rate to pay for higher prices and maintain spending."

"That process is threatened if price increases overwhelm available savings, or if consumers feel fearful about the future. Fear of the future tends to correlate with job security."

"So far, the “no fire” part of the US “no hire, no fire” labor market is reassuring consumers, supporting spending even as real incomes suffer."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)