US labour market data confirm slowdown

Key US employment data were published yesterday—unemployment, employment, overtime hours, and wages.  The data suggest that the US economy is continuing to slow after the fading of the tax cut "sugar hit".

The markets don't pay much attention to the household employment survey which is very "spiky".  However, it's often quicker to pick cyclical downturns and upturns than the payrolls survey, precisely because it's based on individuals not companies, where the sample survey decays between censuses (censi?).  It's fallen sharply over the last couple of months.

A composite index of employment indicators (total employment payrolls and household surveys, change in unemployment rate inverted, overtime hours) suggests an imminent slowdown.

And a composite index of indicators released soon after the month end also points to an imminent slowdown.

Will the Fed cut rates soon?  I think they will wait for a bit more data. In the past they've waited until payrolls turn negative, which hasn't happened yet but prolly will in the next few months.   After all, this may just be another random dip which might be soon reversed.  I don't think it is, but I may be wrong.  And the thing is, the labour market is very tight, with wages at last starting to respond as they normally do.   This may inhibit the Fed's willingness to cut rates.

The Fed seldom cuts rates when wage inflation is accelerating.  They need convincing evidence of significant economic slowdown.  Which they haven't yet got. 

 But even if they do start cutting rates in the next couple of months, that will be too late to stop a recession.  Trade wars aren't helping nor is the fading of the fiscal sugar hit, which usually ends in a hangover.  My index of longer-leading indicators has turned, but the economy looks likely to contract through the middle of 2020.