Yes, it’s that time again, folks. Jobs Friday, when for one ever-so-brief moment the interests of Wall Street, Washington and Main Street are all aligned on one thing: jobs.
The Bureau of Labor Statistics is expected to report that the economy added 180,000 jobs in August, with the unemployment rate falling to 4.8%. In July, the economy added 255,000 jobs, and the unemployment rate was 4.9%.
Here at MoneyBeat HQ, we will crunch the numbers, track the markets and compile the commentary before and after the data crosses the wires.
No resounding vote for September
For Quincy Krosby, market strategist at Prudential Financial, today’s report was “solid but not the stellar numbers needed to convince the market that September is in play.”
“While the report is solid and could be subject to a positive revision,” she said, “it falls short of providing a resounding vote for a September move by the Fed.”
Long-term Treasury yields are bouncing higher here but not moving all that much, an interesting reaction given the disappointing number. The 10-year yield is now up 0.005 percentage point at 1.572%.
One read on this is that bond traders have been some of the more skeptical Fed watchers, and never really baked in the possibility of a September rate rise into prices.
Another is that investors have been simply sitting tight, tuning out some of the noise in other markets, and have been unwilling to write off anything. The 10-year yield has been trading in a narrow range between about 1.45% and 1.60% for much of the past two months. It only briefly closed above 1.60% after Ms. Yellen’s comments and then dipped back below that threshold the following trading day.
Fewer moves now might then mean bigger moves ahead once the central bank offers more clarity on its rate-rise schedule.
GBP/USD rises to a four-week high of $1.3342, from around $1.3280 after the U.S. jobs report came in below expectations. This weighs on the U.S. dollar as the data may not be sufficient to prompt policy makers to increase interest rates at the Fed’s policy meeting later this month. GBP/USD’s next target is the Aug. 3 peak of $1.3373.
Treasurys yields tick lower
U.S. government bonds strengthen modestly as the latest employment report fell a little short of expectations, potentially making it more difficult for the Fed to raise interest rates later this month.
Although Fed officials have signaled recently that an interest-rate increase could be imminent, many investors have been skeptical that it would move before the election with inflation still below its 2% target.
Friday’s data could reinforce that view though it follows two strong jobs reports.
The 10-year yield was recently at 1.551% vs. 1.577% just before the report and 1.570% Thursday, while the two-year yield falls to 0.750% from 0.790% Thursday.
U.S. trade gap narrowed 11.6% from a month earlier
Meanwhile, the U.S. trade deficit narrowed in July as American exports picked up, a sign of strengthening global demand.
The trade gap narrowed 11.6% from a month earlier to a seasonally adjusted $39.47 billion, the Commerce Department said Friday. Imports fell 0.8% while exports rose 1.9%.
Economists surveyed by The Wall Street Journal expected the deficit to narrow to $40.3 billion in July. The June deficit was revised to $44.66 billion from $44.51 billion.
July’s 1.9% rise in exports was its largest increase in more than two years. It came despite a surge in the dollar’s value against other currencies in late June following the Brexit vote, a rise that lasted through most of July. A strong dollar makes U.S. goods and services more expensive for overseas buyers and makes imports cheaper for U.S. consumers.
You can read more about it here.
The hot hiring came with cold wages
This is a weakish number, though probably not weak enough to really put a scare into anybody. The 151,000 jobs added is below the average monthly gain of 204,000 over the past 12 months, but it isn’t below some psychological threshold, like 100,000, or 50,000, or even a negative number.
What is interesting, to me at least, is breakdown of which sectors added jobs. The BLS, in its report, breaks down the establishment survey data by sectors, and will highlight the top four or five sectors. The top two sectors this month were “food services and drinking places,” which added 34,000 jobs, and social assistance, which added 22,000.
I have to say, I cannot recall seeing those two categories at the top of the list. Not sure if that means anything, but it stood out to me. One thing I can say for sure, those are not two high-paying sectors. Food services, in fact, is one of the worst.
Reminds me of this comment I saw this morning from Longford Associates’ Joan McCullough (written before the reported hit the Tape):
“See? We’re ‘at or near full employment.’ But only if you agree that a laid-off mechanical engineer working part-time, nights, as a pin-setter at Bowler City in Hackensack, N.J., is a sign of same.”
CDS relief for European corporates
The cost of protection against corporate defaults in Europe is becoming cheaper after the lower-than-expected jobs number. The iTraxx Main is tightening to 68.02 bps from 68.76 bps prior to the payrolls release, while Crossover is tightening to 310 bps from 312.76 bps within the space of a few minutes – both setting intraday lows.
Probabilities of a rate rise
The probability of a September rate rise has just been more than halved, according to CME Group data.
Traders in the fed funds futures market now see a 12% chance of an increase this month. The chances of a rise by December are a bit lower, but there’s still a 51% probability of an increase.
Those probabilities were at 27% and 55% respectively just before the release of the numbers.
Bank stocks beating
Bank stocks were some of the best performers last month as Fed officials signaled a rate rise could be coming. On Friday in pre-market trade, they are some of the worst, another sign that traders are taking a September rate rise off the table.
Bank of America Corp. is the fourth worst performing stock in the S&P 500 ahead of the open, down 1.6%. Citigroup Inc. and Wells Fargo & Co. are down 1%. The S&P 500 is poised to open 0.3% higher.
Employment in food services and drinking places continued to trend up in August, adding 34,000 jobs. Over the year, the industry has added 312,000 jobs.
Social assistance added 22,000 jobs over the month, with most of the growth in individual and family services.
Employment in professional and technical services rose by 20,000 jobs, about in line with its average monthly gain over the prior 12 months.
Financial activities employment continued on an upward trend in August adding 15,000 jobs, with a gain in securities, commodity contracts, and investments. Over the year, financial activities has added 167,000 jobs.
Health care employment continued to trend up in August adding 14,000 jobs, but at a slower pace than the average monthly gain over the prior 12 months.
Employment in mining continued to trend down in August falling by 4,000. Since reaching a peak in September 2014, employment in mining has declined by 223,000, with losses concentrated in support activities for mining.
Employment in several other industries–including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, temporary help services, and government–changed little over the month.
Market: A difficult September
The initial read from the market is that a September rate rise will be more difficult to achieve.
The differential between short- and long-term rates is rising, typically a reaction to signs that rates will remain low. The 10-year Treasury note yield has been bouncing around, and is now down 0.01 percentage points at 1.558%.
S&P 500 and Dow industrial futures are both up about 0.3%.
Participation rate flat with July, down from August 2015
The labor force participation rate was 62.8%, flat with last month, and down from 62.9% a year ago.
Revisions net out to 1,000 fewer jobs
Revisions net out to 1,000 fewer jobs added over the past two months.
The change in total nonfarm payroll employment for June was revised down from +292,000 to +271,000, and the change for July was revised up from +255,000 to +275,000. With these revisions, employment gains in June and July combined were 1,000 less than previously reported.
Over the past 3 months, job gains have averaged 232,000 per month.
Average hourly wages rose 2.4% from a year ago
Average hourly wages were up 3 cents, or 0.12%, from a month ago, and were up 2.4% from a year ago.
Unemployment rate flat at 4.9%
The unemployment rate was unchanged at 4.9%. Market expected it would ease to 4.8%.
Weak ISM puts even more pressure on this report
Thursday’s unexpectedly poor ISM manufacturing reading makes today’s monthly jobs report all the more important, says Mike Bell, strategist at JP Morgan Asset Management.
The Institute for Supply Management’s index of manufacturing activity fell to 49.4 in August from 52.6 in July. A reading above 50 indicates factory activity is growing, while a reading under 50 signals contraction.
“We’ll be looking at hours worked within the manufacturing sector to see if there’s confirmation of the weakness,” he says, pointing to recent divergence between Thursday’s ISM report and U.S. manufacturing PMIs, which point to more solid growth.
While it’s not his base case, “a weak outlook for jobs growth in the U.S. could be viewed as confirmation of a slowdown in manufacturing and a rebound of concerns about potential recession probabilities increasing.”
Ignoring the bad stuff
A little bit of existential thinking on the meaning of the jobs report ahead of the print, from FTN Financial’s Jim Vogel:
“Job reports have an outsized influence on markets – and the Fed – because when they’re good, they allow traders to ignore the accumulated drip of occasional bad news. Few took real notice when July retail sales took a dive, for example, because ‘how bad can things really be when jobs are growing so quickly?’… If August falls short of expectations, every negative miss on economic data will erode growing confidence in a Fed rate hike before the end of the year, much less in September.”
A bad week for oil could get worse
Oil’s having its worst week since January and today’s payrolls report could make it worse.
A strong jobs number could raise expectations for a near-term interest rate hike by the Fed which could catapult the dollar higher and sink oil prices further since oil’s traded in greenbacks.
The monthly jobs data is fueling “higher anxiety” than normal due to recent remarks by Fed officials, say currency analysts at Brown Brothers. If the dollar does jump, oil’s only defense might be fresh comments by Russia’s Putin, who signaled support for crude oil output limits by top producers. The Nymex Oct contract was recently up 1% at $43.61/bbl.
Dollar rally to be put to the test
The recent rally in the U.S. dollar will be put to the test today.
Risks surrounding the jobs number are skewed to the downside for the dollar, said Vassili Serebriakov, a currency strategist at Crédit Agricole.
If the headline number is below 100,000, “I think we’ll see an aggressive un-pricing of a September hike,” said Mr. Serebriakov. That would weigh on the dollar, which has risen over 1% in the past week against major peers as expectations for a rate increase have risen.
To propel the dollar higher, Mr. Serebriakov said the report would likely have to show another 200,000 jobs were added in August, in addition to firm wage growth.
“The bar seems to be higher for the report to be seen as as hawkish,” he said.
The WSJ Dollar Index is essentially flat right now ahead of the report.
Read more: http://blogs.wsj.com/moneybeat/2016/09/02/august-jobs-report-everything-you-need-to-know-2/
U.S. Added 151,000 Jobs Last Month, Dampening Prospects for a September Rate Increase
Capping two consecutive months of hearty jobs gains, hiring eased in August, with the government reporting on Friday that employers expanded their payrolls by 151,000 workers. The temperate performance is expected to bolster those within the Federal Reserve who favor a wait-and-see approach toward raising the benchmark interest rate when the central bank meets later this month.
The official unemployment rate, based on a separate survey of households, remained at 4.9 percent. Average hourly earnings grew only 0.1 percent, bringing the 12-month increase in wages to 2.4 percent, modest though still ahead of inflation. Revisions to the job gains previously reported for June and July found 1,000 fewer positions. Over the last three months, job gains have averaged 232,000 a month, with 271,000 in June and 275,000 in July.
Read the rest: http://www.nytimes.com/2016/09/03/business/economy/jobs-report-hiring-unemployment-wages-fed-interest-rates.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region®ion=top-news&WT.nav=top-news&_r=0
Tags: Below economist predictions, GBP/USD Rises to 4-Week High, interest rated, Janet Yellen, keptical Fed watchers, Long-term Treasury yields are bouncing higher, Nonfarm payrolls came in at 151, U.S. Federal Reserve, U.S. jobs report, US added 151K jobs in August, WSJ Dollar Index