Instant Analysis: Employment report for August
The August employment report underwhelmed expectations, coming in with a 151K increase in jobs. The consensus had been looking for a 180K gain on the month. On the bright side, last month’s increase was revised up to a strong 275K, so the two-month average held at 213K.September hike off the table?
Still, the details of the August employment report looked softer than expected, likely taking a September rate hike from the Fed firmly off the table. The Fed funds future market currently places a 26% probability of a September rate hike, down from a 34% probability yesterday. I continue to forecast a December rate hike from the Fed, which the futures market now places a 56.1% probability on.
Treasury bond yields with 5-year maturities and under are seeing declining yields today, while 7- to 30-year maturities are seeing modest yield increases. For example, the yield on the 10-Year Treasury bond is 1.582%, up 1.4 basis points on the day. S&P 500 futures are trading 0.3% higher, and the U.S. dollar is lower on the news.Some sectors, hourly wages lose momentum
The U.S. unemployment rate remains at 4.9%, while economists had been looking for a decline in unemployment rate to 4.8%. Employment in the household survey, on which the unemployment rate is calculated, increased only by a modest 97K. The labor force added an anemic 176K last month compared to the prior two months which averaged gains of 411K a month, keeping the labor force participation rate steady at 62.8%.
Private payrolls increased only 126K last month, while goods employment dropped by 24K jobs. Manufacturing payrolls slipped by 14K and construction jobs dropped 6K. Temporary help jobs also slipped by 3K, likely related to the weakness in goods production and the slowdown in service job growth.
Service sector job growth wasn’t what we have seen in recent months, either. However, we have been anticipating a slowdown in job growth in these sectors. Education and health care sectors added 39K, trade (+34K), leisure and hospitality (+29k), government (+25K), business services (+22K), financial services (+15K), and information (+4K).
Perhaps worse than the slowdown in job growth was the downshifting we see in average hourly earnings growth and hours worked. Average hourly earnings increased 0.1% last month, and the year-on-year increase slipped to 2.4% from 2.7% last month. Average weekly hours fell to 34.3 hours from 34.4 hours last month.Worrying pattern may develop
Overall, a weaker-than-expected jobs report for August that showed renewed softening in the goods-producing side of the economy. This report should give the FOMC pause as it considers whether to increase interest rates at the next meeting this month. The Fed had been jawboning for a rate increase, perhaps as early as this month, but today’s jobs data doesn’t likely meet most members’ threshold for an imminent rate hike.
One month of disappointing data does not make a trend, but it will keep the Fed in the wait-and-see camp a little longer. I just worry what this constant jawboning, followed by disappointment, will do to the Fed’s credibility when it actually does become necessary to increase the Fed funds rate and the market thinks the Fed once again is just crying wolf.