Is the NFP still good enough for a September hike? 3 opinions
Why Most Investors Should Ignore the Jobs Report
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.
It 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 portfolio.
Apart 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.
The 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.
It 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.
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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.
August NFP: Labor Markets Squeak Past Threshold For September Hike – Barclays
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.
August NFP: ‘Good Enough’ For A September Hike – BNPP
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 stable.
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).
August NFP: Feeling Weak: Keeping Our Fed Call For December Hike – BofA Merrill
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%.
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