Chicago Fed president unpacks weak jobs report and what it says about the economy

Geoff Bennett:

Fresh government data show the labor market hit a wall this summer. The August jobs report came in far weaker than expected, signaling a slowdown that could challenge the president's economic message.

Amna Nawaz:

Employers added just 2,2000 new jobs last month. The only sector that added significant numbers was health care. Several other sectors, including manufacturing, lost jobs.

Revisions also showed that the economy lost 13,000 jobs in June. That is the first net loss since December of 2020, during the pandemic. President Trump was asked about those weaker numbers. He said high interest rates were partly to blame and predicted unprecedented job growth to come next year. He then cast some doubt on the latest data and said there may be more adjustments to come.

Donald Trump, President of the United States: The other thing is, so many different — so many different elements aren't included yet. And one of the things we have learned — and we learned that the hard way watching over the last few months — are the corrections that people have been making.

They will say you're losing jobs, and then they will say, by the way, we have a correction a month later.

Amna Nawaz:

This was the first monthly jobs report since the president fired the commissioner of the Bureau of Labor Statistics just hours after a weak jobs report last month. Experts said today they have seen no problems with the agency's work yet or the acting commissioner overseeing it.

I spoke about all of this earlier today with Austan Goolsbee, the president and CEO of the Federal Reserve Bank of Chicago.

Austan Goolsbee, welcome back to the "News Hour." Thanks for joining us.

Austan Goolsbee, President, Federal Reserve Bank of Chicago: Hi. Thank you for having me.

Amna Nawaz:

So let's just start with your reaction to those jobs numbers, 22,000 new jobs added in August. What do those numbers say to you about the labor market and the economy?

Austan Goolsbee:

Well, they're not positive numbers. They're coming in weaker than was expected and weaker than what folks would like.

The only thing I will raise and remind folks is, A, be a little careful overindexing on one month, and, B, for a variety of reasons, the monthly payroll jobs number has gotten a little noisier, let's call it, as an indicator of where we are in the business cycle. There are also some other indicators you want to look at, like the unemployment rate, the hiring rate, what's happening with layoffs.

And not all of the labor market indicators are showing the kind of weakness that this monthly number is showing. So it's a little mixed.

Amna Nawaz:

And what about that downward revision looking back to June, a net loss of 13,000? What's behind that?

Austan Goolsbee:

Well, one thing could be behind it is, we could be seeing a deterioration of the labor market. Another thing that could be behind it that's probably pulling the numbers down is we have got — we have had a pretty significant reduction in net immigration to the United States.

And immigration is usually a pretty significant contributor to the labor force, or at least labor force growth. So we have been highlighting for months now that this could happen, that if we started really squeezing labor force participation or cracking down on immigration, that you might start seeing monthly jobs numbers shrinking.

This is probably a little smaller than what we expected from that. We tend to think of it as economists around a break-even. What would be the break-even that you would say the economy's neither overheating or undercooling? The break-even, if I had to guess, 75,000, 85,000.

So that we're in below that is making folks a little bit concerned.

Amna Nawaz:

Well, Chair Powell referenced some of the immigration restrictions specifically last month in his remarks, their impact on the labor market. And we know those restrictions are not changing under this administration any time soon.

Just yesterday, there was a raid on a Hyundai plant in Georgia in which more than 400 people were arrested. Are those kinds of actions having an impact on the labor market? And is this the beginning of a longer downward slide?

Austan Goolsbee:

The first thing to note is what matters is not one specific raid or anything like that. It's the total net immigration into or out of the country. And we saw last year, for example, big jobs numbers, 185,000 a month on average for the year.

It ended up being a sign that, looking back, ah, there was a lot more population growth than we knew as it was happening. That's what we're trying — everyone is trying to tease out from the data like the ones that are coming out today, is, we don't observe, we don't know what's — how much the immigration is pulling down the number.

I'm more comfortable looking at multiple job market indicators. The hiring rate is kind of low, but the layoffs have not really commenced. If you thought this was the beginning of a recession, you would think you would be seeing a big uptick in layoffs. And the job openings/vacancy rate is actually still quite good. It's even better than it was 2019 before the pandemic, which was a strong labor market.

So, we're just going to have to see as the months come through here, is this a sign that the labor market is deteriorating or is this a sign that some things are happening behind the scenes that make the number a little noisier to interpret?

Amna Nawaz:

While I have you, I have got to ask quickly about the fact that this is the first jobs report that we have seen since President Trump fired the BLS commissioner.

There were a lot of questions about whether or not the numbers could be trusted, if there was political pressure. Do you have any reason not to trust these numbers?

Austan Goolsbee:

I have no reason not to — there were a lot of no's in there. I have no reason not to trust these numbers. The Bureau of Labor Statistics is absolutely the best source of data that exists about the labor market and the U.S. economy.

It's not perfect, and there's definitely noise in it, and the noise has gotten harder over time because people don't answer surveys and things like that. So I would encourage everybody to look at as many pieces of information as you can. As I say, if you're one of the data dogs, one of the key rules of the data dog is sniff everything that hits the floor because it might be food.

(Laughter)

Amna Nawaz:

So, look ahead for us if you can now. Do these latest numbers strengthen the case for interest rate cuts ahead?

Austan Goolsbee:

As you know, the law tells the — gives the Fed a job when setting monetary policy to pursue what we call the dual mandate, to maximize employment and stabilize prices. You have got to pay attention to inflation.

And we have had some months of really benign readings and that almost said, no need to pay attention here. But in the latest data, we saw a couple of warning signs, disturbing signs, like services inflation really kicking back up again. That's probably not coming from tariffs.

So we're on the lookout, was that just a blip or do we got to be thinking about both sides of the Fed's mandate at the same time? And that's always the more uncomfortable circumstance.

Amna Nawaz:

I'm sure you have been aware of the president's very public campaign to apply pressure to the Fed chair, Jerome Powell, as well, and also his attempts to fire Lisa Cook from the Fed board.

I also want to ask you about the fact that the president's been very clear about the fact that he would like to exert more control over the Fed. He's used explicit language saying that we will have a majority soon if he's able to replace Lisa Cook on that board.

What do you make of that? Are you worried about political interference on the Fed? Are you worried about it maintaining its independence?

Austan Goolsbee:

We have through the Federal Reserve Act a process that was designed to keep as much as humanly possible Fed monetary policy decisions away from — that there will not be political interference in determinations like that.

That's not just at the Fed. All the rich countries of the world have independent central banks because economists are basically unanimous that it's extremely important that we preserve Central Bank independence from that kind of political interference.

So I think that's very strong and a very strong endorsement of independence. Makes me uncomfortable anybody who's making the argument that the monetary policy decisions should not be based on the economic conditions and the economic outlook, but should instead be based on the political viewpoint of one party or another. I think it's a mistake.

That's a recipe for inflation coming back. If you just look around the world at places where they don't have that independence, inflation is much higher, growth is slower, the job market does worse.

Amna Nawaz:

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, always good to speak with you. Thank you again for making the time.

Austan Goolsbee:

Lovely to see you again.