While we have exposed the ugly under-belly of today's jobs data, mainstream media is spinning it as a 'Goldilocks' report with enough hits-and-misses for every hawk or dove. The market's initial reaction signals rising expectations of a September rate hike but, as Goldman's Jan Hatzius explains, they continue to expect the FOMC to keep policy rates unchanged at the September 16-17 meeting.
Via Goldman Sachs,
BOTTOM LINE: Nonfarm payroll employment increased less than expected in August, although earlier months were revised up. The unemployment rate and broader measures of underemployment declined. We continue to expect the FOMC to keep policy rates unchanged at the September 16-17 meeting.
1. Nonfarm payroll employment increased by 173k in August, less than expected by the consensus of economists. The deceleration relative to July reflected a downshift in a variety of components, including manufacturing (-17k vs +12k previously) and retail trade (+11k vs +32k previously). The mining sector continued to shed jobs (-9k in August). Overall private payrolls expanded by 140k, down from 224k in July. Firmer government payrolls provided a partial offset, with gains of 33k in August, an acceleration from +21k in July.
2. Other details in the establishment survey were a bit more encouraging. First, payroll growth over the two prior months was revised up by a net 44k. Second, average weekly hours increased to 34.6, and the index of aggregate hours (i.e. employment multiplied by average weekly hours) has now increased at an annualized rate of 3.1% over the past three months. Third, average hourly earnings growth was also slightly better than expected, rising by 0.3% month-over-month and 2.2% from a year earlier.
3. Results from the household survey were mostly positive. The U3 unemployment rate fell to 5.1% (5.112% unrounded) from 5.3% in July, and the broader U6 underemployment rate fell to 10.3% from 10.4%. Household employment increased by a decent 196k (+106k on a payrolls-consistent basis), although the trends in employment growth from this survey remain relatively soft (with three- and six-month average gains of 80k and 123k, respectively). The labor force participation rate was unchanged at 62.6%.
4. With payrolls, unemployment claims, consumer sentiment, vehicle sales, and a number of business surveys in hand, our preliminary read on the August Current Activity Indicator is +2.8%, in line with the July figure. We continue to expect the FOMC to keep policy rates unchanged at the September 16-17 meeting.