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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%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.