With the jobs report coming in at just shy of 1 million jobs on the establishment survey (and just over 1 million on the Household survey), with strong job creation, a big drop in unemployment rate, higher employment-to-population, rising wages and hours worked, and favorable revisions, consensus - at least judging by the market reaction - is that we have entered the "substantial progress" phase, greenlighting a tapering signal by the Fed at the end of the month during the Jackson Hole symposium.
And yet there is one potential hurdle: the Delta surge and ensuing restrictions and/or lockdowns: as TD Ameritrade's JJ Kinahan says, "because of the delta variant, until we know a little bit more about that, I think it throws a different wrench in there, where we’re like, OK, now we’re in wait-and-see mode there. Great to see that the jobs are progressing and the economy is progressing -- hopefully by the next jobs report we’ll know if the economy can keep progressing at this pace. Right now it looks like it will.”
Do others agree? Below we have excerpted some analyst and strategist reactions to today's report.
Jan Hatzius, chief economist at Goldman:
"Nonfarm payrolls rose 943k in July, above consensus and reflecting a continued boost from reopening. The details of the report were also strong, with over 100k of upward revisions and a half-a-point drop in the unemployment rate. Average hourly earnings once again rose sharply among hospitality workers, and the economy-wide pace was also somewhat above expectations. Our composition-corrected wage tracker stands at +3.5% in Q2 (vs. +3.2% in Q1). We had expected a strong report, so today’s data only marginally increased our subjective odds of a November tapering announcement."
"We continue to expect the taper countdown to start with a first warning at the September FOMC meeting that leads up to a formal announcement at the December meeting. We had expected a strong July jobs report, so today’s data only marginally increased our subjective odds of a November tapering announcement. We now see a25% probability of a formal tapering announcement in November (vs. 20% previously), a55% probability that it will come in December (unchanged), and a 20% probability that it will come after the end of this year (vs. 25%)."
Katherine Judge, CIBC Capital Markets:
“With many states set to see the unemployment benefit top-ups expire in early September, healthy job gains should continue ahead, in line with elevated job openings. This print should be enough to allow the Fed to announce an early 2022 tapering of QE at the September meeting.”
Chris Turner, head of foreign exchange strategy at ING Bank:
The stronger-than-expected jobs report makes it more likely that Federal Reserve Chair Jerome Powell may “drop heavy hints” at the Jackson Hole Symposium later this month, that the central bank may prepare to start tapering over subsequent months. The data is positive for the dollar versus the low-yielders such as the yen and euro. Still, the outlook for the greenback “should not necessarily damage the risk environment....Unless U.S. 10 year yields spike aggressively, high yield EM currencies should see demand on dips”
Carl Riccadonna, Bloomberg Intelligence economist:
The jobs report is “sturdy, but not as strong as it looks.” In addition to the modest fade in the pace of private-sector hiring (703,000 in July vs. 769,000 in June), much of the July gain occurred in the tenuous leisure and hospitality sector -- and that could easily reverse due to Covid-19, he said. This already appears to be evident in metrics such as OpenTable bookings. “So if we look at private-sector hiring outside of leisure and hospitality, today’s reported gain was 323,000, a bit slower than the prior month’s 375,000. This tells us that underlying economic momentum is steady-state, not accelerating.”
Neil Dutta, economist at Renaissance Macro:
The FOMC could upgrade its language in the September statement to say that the economy is “on track for substantial further progress,” which would lead to a declaration of achievement of substantial further progress in “November at the earliest.” Tapering, in that event, could begin as early as December.
JJ Kinahan, chief market strategist at TD Ameritrade:
“It’s a great number, there’s no way around that, it really is an impressive number. But I think if we didn’t have this new delta variant coming up, the conversation we’d be having is, is this inflationary, does this mean we’ll go into a taper, etc. But because of the delta variant, until we know a little bit more about that, I think it throws a different wrench in there, where we’re like, OK, now we’re in wait-and-see mode there. Great to see that the jobs are progressing and the economy is progressing -- hopefully by the next jobs report we’ll know if the economy can keep progressing at this pace. Right now it looks like it will.”
Roberto Perli, head of global policy research at Cornerstone Macro:
“The Fed will have one more employment report before the September meeting. Assuming it will be good as well, a plausible base case is for the FOMC to say at the September meeting that the labor market continued to make good progress, and if the progress continues at the recent pace the committee will be in a position to start tapering its asset purchases over the next few months. That would put the onset of tapering in late December or early January.
“So bottom line I think the timeline remains the same. It would be hard to start tapering in September because it would go against both the ‘coming meetings’ (plural) language in the July statement and the notion that the FOMC would provide ample notice before actually starting tapering.”