While the Fed will surely be displeased that after two ~275K prints in a row, the US labor market stalled again by nearly 50%, with August payrolls rising only by 151K, what Yellen will be most focused on is not the number of jobs, but rather the wage growth, or more specifically the lack thereof. As we noted earlier, on an average hourly basis, in August wages rose only by 0.1%, below the 0.2% Wall Street hoped for, and the lowest monthly increase since February.
As usual, however, hourly wages gave only half the story, because the US economy is a product of aggregate hours and wages, and it was here that a major problem emerged. As the chart below shows, when looking at the largest private sector grouping of US payrolls, the total production and non-supervisory workers which amount to roughly 83% of the entire workforce, the aggregate hours worked rose just 1.1% over the past 12 month, the lowest increase since July 2010.
And the flipside to this was that average weekly earnings for all employees not only declined from $884.08 to $882.54 over the past month (with weekly earnings for production and non-supervisory workers likewise declining from $727.92 to $727.10), but that on an annual basis, the 1.5% increase was the worst print in 32 months.
This report confirms what we showed several days ago, namely that the bulk of wage growth has gone to low-paid workers, however now that the tailwind of state minimum wage hikes has passed, the overall wage growth is sliding once again.
In short: if Yellen hikes into an environment in which wages are falling (and as reported last night, in which small businesses are seeing increasing delinquencies and are borrowing less), it will be nothing less than the Fed's attempt to push the economy into a recession.