Many have argues August’s job report would have an unusually large influence on the Federal Reserve. In my view Friday’s release did not disappoint and is certain to fuel a heated discussion both within and outside the Fed.
The economy generated 151,000 in August, considerably short of the 180,000 consensus view. July’s data however was revised 20k higher. These two data points can be interpreted several ways depending upon one’s preconceived bias, I do think it will end the debate as to whether or not the notably weak labor report was an aberration. It was.
Wage growth however is consistently lacking given that wages just grew by 0.1% after the solid 0.3% gain in July thus bringing the annual increase down to 2.4% from last month’s 2.6% rate.
The labor participation rate (LPR) remained unchanged at 62.8%, uncomfortably close to multidecade lows.
Taken in the totality, I believe the August jobs report reinforces the notion of an economy stuck in low gear but reinforces the notion job creation is enough to support consumption and ultimately a driver of US and global growth.
In other words, the Fed is in a tricky positon as the data is not uniformly strong to ensure an increase in September but at the same time a credible case can be made for a hike given the potential damage caused by these prolonged ultra-low interest rate.
Equities initially cheered the data, believing a rate hike will not occur in two weeks but retraced about half their gains.
According to Bloomberg, the S & P 500 has remained within the same 1.5% band for 37 consecutive days, the tightest range since 1964.
There was little reaction in the Treasury market. The 10-year advanced higher by one basis point to 1.59%. Since July 15, this benchmark has traded in a range of 1.45% to 1.63%. Similar to equities, the 10-year had the lowest volatility in over 10 years.
However with this written, because yields are so low, any increase will be large on a percentage and price basis. As noted earlier, August was the month for the Barclays US Treasury Index since June 2015. Yields rose from 1.48% to 1.58% or 13 basis points.
There little on this week’s economic calendar other than Wednesday’s release of the Beige Book and ISM non manufacturing. Will the “Dog Days of Summer” continue?
Last night the foreign markets were up. London was down 0.32%, Paris up 0.16% and Frankfurt up 0.29%. China was up 0.61%, Japan up 0.26%, and Hang Sang up 0.58%.
The Dow should open little changed with many speculating about the outcome of the upcoming Fed meeting. The 10-year is up 1/32 ot yield 1.60%.