The NFP report missed expectations
and we think the bar for a hike on September 21st was much higher
than economists’ predictions anyway. Nevertheless, here are two opinions
that still see a rate hike coming while another one circles December.
Nonfarm payroll growth came in at a solid 151k in August, below our
forecast (200k) and that of consensus expectations (180k). The
establishment survey softened a bit across the board, but continues to
show solid underlying strength. The three month average gain in payrolls
is now 232k. Goods sector employment fell 24k, consistent with
softening in some survey indicators in recent data. Service sector
employers added 150k; these private sector gains were further boosted by
25k in government job gains. The household survey shows an unemployment
rate unchanged at 4.9%, as robust household employment was offset by a
further rise in labor force participation. Finally, wage growth (0.1%
m/m, 2.4% y/y) also softened a touch from last month.
On the whole, this morning’s strong July employment report,
despite the slower pace of job gains, indicates that labor market health
remains intact and that therefore economic activity remains solid.
Furthermore, this print should maintain the confidence of most FOMC
members in the outlook. Most members will view this report as consistent
with solid economic activity and will believe that that activity will
continue to pull inflation upward toward their target.
We maintain our call of a September rate hike.
In August, 151,000 jobs were added, below consensus expectations for
180,000. The three-month average gain (232,000) far exceeds the range of
estimates the FOMC sees as sufficient to keep the unemployment rate
There is nothing in this report that flashes a warning signal about
where the economy is going; very different from the May report that
caused a scare. We see this as a solid employment report that is good enough for the FOMC to deliver a rate hike in September.
For the month of August, hiring in the goods sector was weak while
the services sector normalized a bit after an outsized gain in July.
The tendency for August payrolls to disappoint is no secret. Downside
surprises are usually followed by large upward revisions in the Bureau
of Labor Statistics’ (BLS) second and third estimates (an average
revision of 62,000 in the past five years).
The August employment report was weak,
leaving us feeling comfortable with our call for the Fed to stay on hold
in September and hike again in December.
Nonfarm payrolls expanded by 151,000. July was revised up to
275,000 from 255,000 but June was revised lower to 271,000 from
292,000, leaving net revisions at only -1,000. Average hourly earnings
only rose by 0.1% mom, causing the year-on-year rate to slow to 2.4% from 2.7%. Weekly
hours also contracted to 34.3, down from 34.4 in the prior month
(revised from 34.5 initially). The unemployment rate remained unchanged
at 4.9%, as did the participation rate at 62.8% and the underemployment
rate at 9.7%.
Now that the much anticipated August jobs report is upon us, we are
really none the wiser. In case you missed the breathless anticipation on
the business TV networks here in the U.S., this was hailed as the “most
important jobs report ever” or some such hyperbolic descriptor, by a
lot of talking heads.
The reason, apparently, was that it would
directly influence the Fed’s decision about interest rates. A good
report would make a September hike a virtual certainty, while a bad one
would further delay such action. What we got was kind of “blah!”
and still keeps us guessing, so now is a good time to remind investors
that moments like this are terrible times to make investment decisions.
is not that the Fed’s actions aren’t important; of course they are.
Rather it is just that data releases and their possible consequences
create opportunity for day traders concerned with movement over the next
five minutes and even for swing traders looking at the next five days,
but for most investors looking out five years or more, it is all just
noise. They are far better off waiting to see what the Fed actually
does, if anything, before making any decisions or changes to their
from anything else that is because we cannot possibly know what effect a
number like this will have. The economy actually added 151,000 jobs
last month, with the headline unemployment rate remaining steady at
4.9%. Conventional wisdom says that that makes a September hike almost a
non-starter, as the market was anticipating around 180,000 new jobs.
Federal Open Market Committee (FOMC), however, is not charged with
considering the expectations of Wall Street analysts. They are supposed
to consider the big picture and work towards stable prices and, as near
as possible, full employment. Given that the average hourly wage rose a
respectable 2.4% year on year, this report could even be taken as a sign
that we are, to all intents and purposes, at or near full employment.
is interesting too that that increase in wages was above the Fed’s 2%
target for inflation. Wages don’t directly cause price increases, but
they are a factor, and any added inflationary pressure will be seen by
the FOMC hawks as a reason to go ahead and hike.