The State of the U.S. Labor Market: Insights from Recent Job Reports

The New York Federal Reserve saying consumers raised their inflation expectations last month, and it comes in the same report that showed consumers are also more optimistic about their taxes and perhaps their personal financial situations.

The latest data follows the June retail sales report, which beat expectations as Americans spent 7. $20 billion.

Yes, a billion dollars with a B.

Shoppers are navigating reciprocal tariffs from the White House, hotter than expected core inflation, you name it, they're dealing with it, but it appears spending, at least for the most part, is still holding up.

Bheim joins me now, retail and consumer managing director for S&P Global.

Good morning.

Thanks a lot for being here.

Good morning.

Thanks for having me.

So let's talk about this June retail sales report.

It came out a few weeks back.

We saw about a 0.1% month over month increase in the report.

What was your read and what do you think is most important for the rest of us to pay attention to?

Yeah, I think it matches what you said in your opening remarks, you know, consumers are still spending, so we had declines in April and May, and then we saw a lot of pull forward demand in March in anticipation of tariffs.

So I think what we're seeing is, you know, consumers are spending opportunistically.

Unemployment has held up and supported that spending, but it'll be choppy.

I think, you know, consumer sentiment data has shown that they're worried about inflation and there's signs of softness approaching.

We are so hungry for economic data in this particular ecosystem right now, so we track every data point very closely, including every Thursday morning, of course, weekly jobless claims a bit hotter than originally forecast.

What is the July jobs report, which missed the mark in terms of hiring?

Tell us and what have you seen recently about the state of the US labor market?

Yeah, the labor revision numbers were a big surprise for us.

Again, the overall unemployment number has been in line with expectations, and that's been supporting consumer spending.

But again, that really indicates the forward view about, you know, the labor market.

Their softness, job gains are a little bit weaker than expected and with lower immigration.

You have a lower labor pool, but then that shows that perhaps that the hiring is not as robust as it is.

So we'll see if people can keep their jobs, you know, people who are out of jobs are having a harder time getting jobs.

So I think the overall picture is that there's signs of softness, and if that continues, then the consumer may not be able to spend as much as they have been in the past.

I don't ask this question to needlessly get into the politics of it because suddenly this is a hot political debate in Washington.

But dare I ask, what do you make of the downward revisions we got from the Bureau of Labor Statistics knowing we do get these sorts of downward or upward revisions every few months.

We don't take any one individual month data point.

I think it's better to look at a rolling average, but it's a divisive one in Washington right now.

What did you make of the revisions we recently got from the Bureau of Labor Statistics?

Yeah, again, it was a bit of a surprise for us, but I think again, you know, it happens, and I think, you know, the data that we all rely on that data to make our assumptions and analysis.

So again, I think we have been expecting some softness and the labor market, you know, to normalize from previous levels and it was pretty strong and so again it was a bit of a surprise for us.

Of all the data points with regards to inflation that we track very closely, we know that Jerome Powell is particularly fond of core PCE.

The overall goal is 2%.

Every time I look at core PCE, I have to remind myself we're not at 2%.

You know, we get CPI, we get PPI, we've got headline PCE.

That's all well and good, but if you're in the camp that says core PCEX food and energy is most important, it's still hotter than expected, hotter than it should be, maybe at 2.8%.

Where do you think we stand in terms of inflation, specifically for a Fed that at least for now says we are data dependent?

Again, you know, we're forecasting, uh, you know, inflation to pick up a bit, especially as tariff costs come through, right?

So we haven't seen it come through a lot through the data.

Some of it did come through a little bit in the CPI, right?

And so, We're seeing signs of that in toys and furniture and other categories that we know that are very subject to inflation import tariffs.

So again, we expect a lot of the costs and the tariffs to flow through through the back half of this year and next year, given where we are in the supply chain.

So the consumers really haven't seen it come through their wallets yet, right?

And I think what we're watching closely. is how is a consumer going to react.

They're really pressured already.

They have inflation fatigue and they're seeking value.

So how much can companies really pass on right now we know that a lot of companies are absorbing that cost, so they're trying to mitigate that to alleviate the effects on the consumer, but eventually they'll have to pass on some of it given the levels of the tariffs.

In terms of earnings season, the AI boosted sectors, no big surprise.

They're not going to cover off the ball, but I wonder what you've seen so far in the quarterly earnings season in terms of consumer spending and really the state of play right now.

Yeah, I think a lot of the companies that have reported so far within consumer and retail have given a cautious outlook.

You know, Procter and Gamble has talked about the consumer really being more cautious, you know, using up their inventory, and even higher income consumers are seeking value.

McDonald's made comments the other day, you know, saying that they're seeing more traffic from the higher income consumer, and their value proposition has really resonated well with the consumer as well.

So I think the value-seeking behavior will continue.

They want promotions and a lot of times, you know, a lot of companies didn't give back a lot of the pricing that they took during the last inflation cycle.

So we have that lingering effect where companies will have to balance between, you know, passing on the tariff cost but also trying to drive volume with promotion.

So it will be interesting to see, you know, where that break point is for the consumer and for companies.

Unfortunately I'm about out of time.

Do you have a base case for what you think the Fed does here with rates the last few meetings of 2025?

Yeah, we're still calling for another rate cut by the end of this year of 50 basis points, but we'll see, you know, given that the employment data, we'll watch closely what happens in September.

Yeah, of course last September was the big one of 50 basis point cut.

We'll see what the Fed and the FOMC has in store aside, of course, from the political drama underscoring that particular conversation.

Beach, I'm retail and consumer managing director for S&P Global.

Thanks a lot for being here.

Nice to have you.

Enjoy your weekend.

Thank you, you too.