Hiring Is Losing Steam — Again

• Services and manufacturing surveys show hiring slowed in August.

• That follows on the heels of a hiring contraction in July.

• This week’s employment data is likely to remain weaker than seasonality.

Labor market weakness appears to be rearing its head once more…

This week delivers an important update on the direction of U.S. growth. On Friday, the U.S. Bureau of Labor Statistics (“BLS”) publishes its August payroll report. Wall Street anticipates a gain of 58,000 jobs. If the number lands there, it’ll fall short of the typical August increase of 191,000 since 2015. It would also mark another year where the labor market has remained weaker than average…

August hiring typically runs below the annual monthly average of 227,000 anyway. But recent Fed business surveys suggest employment worsened last month. That points to a number that could miss Wall Street's already-modest bar, and land well short of typical seasonality.

If the national data echoes that weakness, it tells a familiar story: slow, steady growth, but a labor market that isn't out of the woods yet. That's the case for the Fed to stay on hold for the foreseeable future. If it does move to raise rates, it should stop after one hike. That’s an outcome that would still support a continued grind higher in the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

Each month, several regional Fed banks survey manufacturing and services firms to gauge business conditions. I focus on the employment and inflation components from the Dallas, Kansas City, New York, and Philadelphia districts.

• They represent roughly one-third of U.S. GDP.

• They’re released ahead of market‑moving reports like the BLS payrolls.

• The surveys offer an early read on national trends.

Today, I’m zeroing in on employment. Let’s break down the individual components before zooming out to the broader picture.

Starting with manufacturing…

• The chart above tracks the sector’s hiring trend over the past seven years.

• After a pullback in January, hiring appears to be stabilizing, but at a softer level.

• My gauge’s reading for August eased compared to July.

The more important services sector painted a weaker picture…

• Hiring slumped, with the gauge sliding back toward breakeven.

• This marked the second consecutive drop after a June rebound.

• Each region experienced a slowdown in hiring.

To get a cleaner national picture, I combined the manufacturing and services data into a single gauge. It’s weighted 80% services and 20% manufacturing, consistent with the U.S. employment mix. I also weighted each district by its GDP share…

• The overall hiring picture showed a sharp decline.

• In August, my combined index fell to 1.7 from 5.3 in July and 6.8 in June.

• The outcome was much more in-line with the first five months of this year.

Now let’s compare the combined Fed employment gauge with nonfarm payrolls for historical context. The following chart uses a three‑month rolling average to smooth volatility and highlight the trend…

• The combined Fed survey tends to lead national hiring.

• The recent surge in June appears to be distorting the rolling average.

• As the June numbers drop out next month, it’s likely the data turns lower.

Here's the bottom line: manufacturing and services employment showed signs of life this summer, but as I noted back in June, they hadn't fully found their footing. The July and August survey numbers suggest hiring has started to weaken again. If Friday's BLS report confirms that, hiring will remain well below historical norms.

That matters for rates. If the jobs number disappoints, Wall Street may need to rethink its recent bet on Fed rate hikes. The Fed is watching inflation closely, but it doesn't want to break the labor market to fight it — raising rates too fast while prices stay elevated is a bad trade for growth.

And the inflation case for hiking isn't as strong as the headlines suggest. Strip out the gas-price spike from March through May, and monthly CPI growth has averaged roughly 0.1%, or about 1.2% annualized. That's not a level that argues for a series of hikes.

At the end of the day, policymakers may raise rates one time before year's end for credibility purposes. Yet ultimately, if policymakers can remain patient, they may have an opportunity to lower rates once more by the end of 2027. Both scenarios would help underpin economic growth and support a continued long-term rally in the S&P 500.

Five Stories Moving the Market:

Dell Technologies boosted its annual sales forecast by $25 billion in a further sign of surging demand for servers to run artificial intelligence tasks; revenue in the fiscal year ending in January 2027 will be about $192 billion, including $74 billion from the sale of AI servers, compared to the May forecast of about $167 billion – Bloomberg. (Why you should care – management said it has generated almost as much revenue in the last two quarters from traditional servers and networking as it has in any prior full year) 

Palo Alto Networks reported better-than-expected fourth-quarter earnings and revenue while guiding both metrics higher for all of fiscal year 2027; the company announced the ​acquisition of AI-native platform Console, saying ‌advances in artificial intelligence are making cybersecurity a higher priority for corporate technology leaders – Reuters. (Why you should care – the earnings and guidance highlight the growing AI-driven demand for cybersecurity)

Google’s artificial-intelligence research unit is set to release a new model with significantly upgraded coding capabilities, according to employees, potentially shoring up an area where the company has lagged behind competitors OpenAI and Anthropic – WSJ. (Why you should care – Wall Street has been questioning Google’s AI efforts following the recent departure of some high profile employees)

OpenAI plans to soon roll out a powerful new artificial intelligence model called Astra, but said it will limit who can use the software’s most cutting-edge cybersecurity capabilities; OpenAI said it believes the model reaches its “critical cybersecurity threshold,” meaning it’s capable of identifying and developing zero-day exploits without human intervention – Bloomberg. (Why you should care – the statement highlights the increasing need for cybersecurity as AI technology continues to advance)

The administration of U.S. President Donald Trump won backing from all G20 financial leaders ​except China's to act against "non-market" policies and distortions that cause over-reliance on exports and hinder growth elsewhere; Treasury Secretary Scott Bessent said he had warned other trading partners last year that tougher U.S. tariffs would lead to an influx of Chinese goods diverted to their markets – Reuters. (Why you should care – the group is likely seeking to halt China’s policy of dumping cheap goods in overseas ports in an attempt to put local competitors out of business)  

Economic Calendar:

Earnings: AVGO, FIVE, HPE, NTAP, SNOW

U.S. - MBA Mortgage Applications (7 a.m.)

U.S. - ADP Nonfarm Employment Change for August (8:15 a.m.)

BoC - Monetary Policy Announcement (9:45 a.m.)

U.S. - Factory Orders for July (10 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

BoC's Macklem (Governor) Speaks (10:30 a.m.)

Fed's Beige Book (2 p.m.)

Japan - Au Jibun Bank Manufacturing, Services, Composite PMI Final for August (8:30 p.m.)

China - Caixin Services PMI for August (9:45 p.m.)