(Reuters) - U.S. job growth rose less than expected in August, but prior months were revised higher, and the unemployment rate dropped to a near 7-1/2-year low of 5.1 percent and wages accelerated.
Nonfarm payrolls increased 173,000 last month as the manufacturing sector lost the most jobs since July 2013, after an upwardly revised 245,000 rise in July, the Labor Department said on Friday. It was the smallest gain in employment in five months.
The report, however, may have been tarnished by a statistical fluke that in recent years has frequently led to sharp upward revisions to payroll figures for August after initial weak readings.
A Reuters survey of economists had forecast nonfarm payrolls increasing by 220,000 last month, but economists warned that the model the government uses to smooth the data for seasonal fluctuations might not adequately account for the start of a new school year.
DOUGLAS BORTHWICK, MANAGING DIRECTOR, CHAPDELAINE FX, NEW YORK:
”Quite honestly, this report is abysmal. Regardless of the fact that the prior change in nonfarm payrolls was revised higher, and the fact that the unemployment rate ticked down from 5.2 percent to 5.1 percent. This report shows that the U.S. economy’s foundation is indeed weak.
“Couple that with the reduction in unit labor costs by -1.4 percent on September 2nd and we can be fairly certain that the Fed will not raise rates in September. Given this, I am surprised by the strength of the U.S. dollar. I expect this dollar bullishness will begin to dissipate as the day goes on. Liquidity is thin, and a Fed on hold will provide support for the weaker dollar story, and will give a welcome reprieve to emerging market currencies.”
JONATHAN LEWIS, CHIEF INVESTMENT OFFICER AT SAMSON CAPITAL ADVISORS IN NEW YORK:
”The report was weaker than expected and that’s got to be a disappointment for the Fed. The Fed wants to tighten and this makes a case for not tightening. July’s upward revision is good but those numbers are now part of a different era.
”While the unemployment rate fell, the fact that the labor participation number fell is an indication that people aren’t out there looking for jobs and if that’s the case, it suggests that the global turmoil is starting to weigh on the jobseeker. This must be viewed in the context of the manufacturing sector. Manufacturing sector is really starting to slump and this has to be viewed as disconcerting.
“The report shows that the labor market is not as buoyant as people would have hoped. I don’t think tightening in September is a good move on the Fed’s part. I think it would be a policy error. They want to get inflation to 2 percent or higher and beat deflation, but all of the data is leaning against them on that on. Commodity prices are slumping, the TIPs market has been discounting lower and lower (inflation) in recent weeks. Fed tightening is going to drive inflation lower and that’s bad for everyone.”
PETER CARDILLO, CHIEF MARKET ECONOMIST AT ROCKWELL GLOBAL CAPITAL IN NEW YORK:
“The creation of new jobs was disappointing, but unemployment dropped and other points don’t make the report all that weak. Weekly hourly wages grew and the workweek expanded. While the headline may be disappointing the fact of the matter is this report probably takes us to a September rate hike. Job growth is not consistent and it’s disappointing but the report indicates a tighter labor market.”
THOMAS SIMONS, MONEY MARKET ECONOMIST AT JEFFERIES & CO, IN NEW YORK:
“It’s a something-for-everybody number in that the payrolls were disappointing but we got upward revisions to June and July, and also the average hourly earnings was quite solid. Basically all the details of the household survey were quite strong, and a few tenths off the unemployment rate as well.
“I don’t think it changes anything for the Fed. I was of the opinion before that they weren’t going to go in September because (the Fed) has already been close to the employment side for a long time – it’s really inflation that has been holding them back, and this doesn’t really give them any evidence on that front.”
The rate hike decision “will break down to how commodities react between now and the September meeting, if there’s a chance that they’re going to hike. If commodities recover and stabilize then there’s a chance; otherwise I don’t think it’s likely to happen.”
TONY BEDIKIAN, HEAD OF GLOBAL MARKETS, CITIZENS BANK, BOSTON:
“It’s a little bit mixed and the headline number seems soft, but there’s a silver lining. The previous number was revised upwards, while the unemployment ticked lower. So overall, it’s still fairly positive. Still though this report hasn’t changed the outlook for interest rates. The futures market is still pricing in less than 50 percent chance of a hike in September.”
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER AT ALLIANZ, NEWPORT BEACH, CALIFORNIA:
“With this jobs report, in which below-expectation job creation in August is offset by several factors - including a lower unemployment rate, prior positive revisions, wage growth, etc, - the Federal Reserve finds itself in a real uncertainty jam when it comes to a September interest rate hike. In the run-up to its policy meeting, the Fed will pay even greater attention to global market developments – this with a view to minimizing the risk that its words and actions would inadvertently add to market volatility that could spill over into a fragile global economy and weaken it further.”
WIN THIN, GLOBAL HEAD OF EMERGING MARKETS AT BROWN BROTHERS HARRIMAN & CO IN NEW YORK:
“The headline was a little weak but every other metric was strong. No one thinks the September liftoff is a done deal but this certainly supports that.”
RUSSELL PRICE, SENIOR ECONOMIST, AMERIPRISE FINANCIAL SERVICES INC, TROY, MICHIGAN:
“It was a fairly mixed report, but I don’t think it gives the Fed the support they were possibly looking for to make September the first hike. One way to put, it’s a report that provides the Fed with enough caution as it does confidence.
“It was good to see that average hourly earnings increased at a little bit faster pace, but that has been quite erratic the last few months. Clearly the negatives are that in the goods producing sector we’re starting to see a little bit more pressure from the stronger dollar, and the stronger dollar is continuing to act as a restraint on the economic activity similar to any increase in interest rates would.
“The other factor is I would say, the unemployment rate, which clearly is something the Fed will focus on, the U-6 rate, the rate which includes under-employment as well as unemployment, that continues to work its way down, but it’s still quite a distance away from the normal band that typically implies solid labor market conditions. That band usually is around 8.5 to 9 percent, so at 10.3 today, we’re down another a tenth, but we’re still a distance from that region that we would normally see wage inflation start to gain traction.”
SCOTT WREN, SENIOR GLOBAL STRATEGIST FOR WELLS FARGO INVESTMENT INSTITUTE IN ST. LOUIS, MISSOURI:
“This is just in-line with what we’ve been seeing, this thing is moving very slowly in the right direction, wages aren’t going up much. When you look at the number of people unemployed, the people working part-time that want a full-time job and those they called marginally attached to the labor force, it is around 10.5 percent. The labor market is not tight, that is why wages aren’t going up. This is just in line with modest growth, modest inflation and moving in the right direction at a slow pace. I don’t think that is going to change much anytime soon.
”The Fed has in a way backed themselves into a corner and they have a credibility issue. The higher probability (of a rate hike) is December. I lean heavily towards December. The chance of September, the probability there is not zero, but it is pretty low. Janet Yellen has been telling us all year that this is the year and while I still say they do not need to do anything, I think they will give us the token increase in December. That will be it, next year we will see two, maybe three hikes, it will be very slow. I would argue this is just in line with what we have seen, modest moving in the right direction slowly, nothing to get excited about.
”Without the revisions I think we would have been rallying back here strongly. Right now in the futures there is a lot of confusion about how to digest this. But if the market is going to be continue to be sensitive to the timing of an increase, the market is going to think December is the time.”
VINCENT TRUGLIA, CLEAR AND CANDID ECONOMIC AND POLITICAL ANALYSIS, LONG BRANCH, NEW JERSEY:
“Labor force participation rate remained about the same as it has been for the last 3 months. The FOMC can’t use the employment argument to delay a rate rise. Also, people unemployed less than 5 weeks fell by a whopping 393,000. This is an increasingly healthy labor market.”
Americas Economics and Markets Desk; +1-646 223-6300