The market's initial favorable reaction to the mildly
disappointing jobs report may not have much staying power. The
reason is that this report isn't materially outside of the recent
trend line to prompt the Fed to change its thinking on the Taper
question, meaning this month's FOMC meeting will likely bring the
August non-farm payrolls came in at +169K vs. expectations of
about +175K and negative revisions to July and June. The revision
was particularly severe for July, with that month's headline gain
reduced to 104K from the originally reported 162K level; the
combined revisions for July and June was a net negative -74K.
Private sector jobs totaled 152K in August, meaning that the
government sector added jobs during the month. Negative revisions
to government jobs was a big driver for the sharp revision to the
prior month's tally. The average workweek inched up 0.1 hours to
34.5 hours, while average hourly earnings rose by 5 cents to
$24.05, up +2.2% year over year.
The unemployment rate dropped to 7.3% from 7.4%. The drop in
the unemployment rate was largely a function of lower labor force
participation rate, the share of the U.S. population that is
either working or looking for work. The labor force participation
rate dropped to 63.2% in August, the lowest level since the late
1970's (the rate was 63.4% in July).
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A charitable view of this report can be that it isn't way off the
past year's trend line. The headline gain of 169K in August
compares to the preceding 12-month's average of 184K. Consensus
expectations hadn't budged much following Thursday's inline ADP
reading, but many had been looking for a much stronger number
given the momentum in the two ISM surveys and the very low level
of Jobless Claims.
Those data points appeared to show that improved economic growth
could more than make up for the rising interest rates as a result
of changes to the Fed's QE program. The Fed is likely fine with
this environment and will move towards 'Taper' later this month,
but the stock market may not get the economic and earnings growth
that it has been pricing in.