August NFP: US Non-Farm Payrolls below Expectations at 151,000, Fed Response Critical

The headline increase in August non-farm payrolls was weaker than expected at 151,000 with the market consensus gain of around 180,000. There was an upward revision to July’s increase to 275,000 from 255,000 previously with the three-month average increasing to 232,000 from 190,000. There was an increase in private-sector jobs of 126,000 for the month from 225,000 in July.

The data is not the unambiguous strength that would have convinced the market over the potential for a September rate increase and Fed comments will be monitored very closely in the short term with markets more sceptical over a move at this stage.

Manufacturing employment declined by 14,000 for the month, while there was a 6,000 decline for construction jobs. There was a stronger increase in retail jobs for the month, while temporary-help jobs declined. There was also a slower increase in government jobs of 25,000 for the month.

Unemployment was unchanged at 4.9% compared with expectations of a small decline to 4.8%, while the participation rate was unchanged at 62.8% as the labor force increased by 176,000 on the month.

As far as average earnings are concerned, there was a monthly increase of 0.1% compared with expectations of a 0.2% monthly gain with the annual increase declining to 2.4% from 2.6%. There was a small decline in weekly hours to 34.3 from 34.4.

The employment data will remain extremely important for expectations surrounding potential Federal Reserve tightening, especially with the next Federal Reserve Open Market Committee (FOMC) meeting due in under three weeks time.

Recent comments from senior Federal Reserve officials including Chair Yellen suggest that the committee is much closer to raising interest rates, although they continue to insist that they are data dependent. They are also not expecting payroll growth to be sustained above the 200,000 level.

In this context, the Fed will not be overly disappointed surrounding the employment data, but there will be some disappointment over average earnings. Nevertheless, the Fed could well decide to push ahead with a September move given overall labor-market tightness.

The dollar weakened after the data with EUR/USD back above 1.1200, while USD/JPY dipped to test support below 103.00 from 103.50 ahead of the release. Treasuries were in positive territory with gains of around 8 ticks, but there will be the risk of a reversal later in US trading as Fed policy is re-considered. US equity futures were slightly higher ahead of the open.

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Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.