U.S. employment growth slowed more than expected in August after two straight months of robust gains and wage gains moderated, which could effectively rule out an interest rate increase from the Federal Reserve this month.
KEY POINTS:* Headline job growth at 151k vs 180k estimate
* Private sector adds 126k vs 178k estimate
* Unemployment rate steady at 4.9 percent
* Revisions: July up 20k to 275k; June down 21k to 271k
COMMENTS:QUINCY KROSBY, MARKET STRATEGIST, PRUDENTIAL FINANCIAL, NEWARK, NEW JERSEY:
"With equity futures rising, the dollar weakening, gold strengthening, and the 10-year yield pulling back, the market has voted and says a September rate hike is off the table. While the report is solid and could be subject to a positive revision, it falls short of providing a resounding vote for a September move by the Fed. Although there will be a full parade of data before the meeting, there is a premium on the employment data. It was solid but not the stellar numbers needed to convince the market that September is in play."
RANDY FREDERICK, MANAGING DIRECTOR, TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS:
"Nothing to surprise a whole lot of people in any of this. I think the non-farm payroll number was just a little bit weak but it's nothing to be alarmed about.
"I don't think this particular report, given where it came in at, is enough to move the markets in any material way. Surprisingly the equity futures have responded fairly positively.
"It's not at all surprising to see us move a little higher given that we are at the low end of the range we have been in for the last six weeks. But is this going to be enough to push us out? I'd be very surprised if that happened."
GREG PETERS, SENIOR INVESTMENT OFFICER AT PRUDENTIAL FIXED INCOME, NEWARK, NEW JERSEY:
"Today's payroll figure definitely pushes the September rate hike and it looks like we are data dependent even more so for the rest of the year. I think incoming economic data will create a little more volatility in the fourth quarter. Overall, I can't believe that after 256 days since the December rate hike last year with hundreds of economic data releases since that time, it seems ludicrous that the Fed's decision is singularly predicated on one single data release that is known to be volatile and subject to significant revisions. Could this really be the case, or are the markets simply putting too much stock in selected events to create their own guideposts given the Fed's poor communication strategy? Either way, to me, this loudly speaks to their massive communication problem and why the markets are increasingly losing confidence in the institution as a consequence."
TONY BEDIKIAN, HEAD OF GLOBAL MARKETS AT CITIZENS BANK, BOSTON:
"The number came in obviously a little bit below expectations, but still close to 150,000 new jobs. I think the Fed will still view that quite positively. The revisions the last two months were about flat, and I think the Fed is cognizant that the August number historically has had the greatest likelihood of being revised upward by roughly 70,000 jobs on average. So all in all, it looks like a fairly positive number here."
"The market would like to have seen a 200,000 plus payroll print to really get the Fed off the fence. There is still a possibility that the Fed does go in September, because overall the payroll trend has still been positive, the market has priced in about a 1 in 3 chance still of the Fed going later this month, and we still have a little bit more data, there are some inflation numbers to see between now and then, so if we do get some uptick in the inflation data, the CPI and PPI later this month prior to the Fed meeting on the 21st, then the Fed could go. I think this number doesn't necessarily jog the Fed in the near-term."
KEVIN LOGAN, CHIEF U.S. ECONOMIST, HSBC SECURITIES, NEW YORK:
"At the margin it dissuades the Fed from moving in September. It's not a clincher. If they feel they want to go for other reasons they can. But this jobs report is not a compelling reason.
"The wage gains are very modest and that's important. The whole logic here is that a tighter labor market, means rising wages, means upward pressure on inflation – and for that reason they should reduce accommodation. But that's not happening, so this report does not compel them to move."
HEIDI LEARNER, CHIEF ECONOMIST, SAVILLS STUDLEY, NEW YORK:
"I don't think it shifts the thinking, I do think it could be fifty-fifty. It's not surprising to see moderation in the three-month average is still OK. The only thing that was a little bit surprising to me was the slowdown in temporary help and employment services, which always makes me a little nervous. But there wasn't enough weakness in the report to derail the Fed, but similarly it would not be a mistake now if they waited until December rather than September."
CRAIG BISHOP, LEAD STRATEGIST FOR U.S. FIXED INCOME, RBC WEALTH MANAGEMENT, NEW YORK:
"I think (the jobs data) points to continued hiring although some of the other numbers, what we refer to as the Yellen indicators - the measure of slack in the labor force, wages, labor force participation and underemployment – really showed no progress, in fact wages were lower from a month ago. I think it points to continued hiring but not progress made on those measures that the Fed and Yellen look at to indicate a lessening of slack in the labor force. Looking at it in context of what it means for the September FOMC meeting."
"I think it continues to point to a solid employment picture in the U.S., but it wasn't that big blowout number that in our opinion would've been needed to cause the Fed to tilt toward a September rate hike. I think you'll see that reflected in rate hike probabilities throughout the day. So we move on now to focusing on whether it's December or 2017."
MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ, NEWPORT BEACH, CALIFORNIA:
"This mixed jobs report puts the Fed in a tricky situation. It's not all around strong enough to assure a September interest rate hike. But it's solid enough to engender a heated policy discussion, especially given the unintended consequences and collateral damage of a prolonged period of ultra low interest rates."
JASON CELENTE, SENIOR FIXED INCOME PORTFOLIO MANAGER, INSIGHT INVESTMENT, NEW YORK:
"I don't think it means much. Net of revisions the import statistics like the headline payroll number and the hourly earnings number were pretty much in line with consensus and trend. As far as the Fed is concerned, I don't think it's a number that is a major setback for what they ultimately want to achieve, which is that a slow and gradual pace for a rate normalization.
"If you look at the probabilities, the market is likely to trade with anticipation for changes in Fed policy, and if you look at what the market has been pricing for September and December respectively, I think those odds are probably fairly accurate in our view and I don't think the numbers today really change those probabilities."
SEAN LYNCH, CO-HEAD OF GLOBAL EQUITY STRATEGY, WELLS FARGO INVESTMENT INSTITUTE, OMAHA, NEBRASKA:
"People are taking a little bit of a relief that it wasn't a 200,000 plus print, certainly in the equity market. 151,000 is a good number, when you look at the last three months we are 230,000-plus on average. Our belief is that equity markets are going to give the Fed at least one rate increase but if they start to perceive a series of hikes coming and coming sooner than later, that is when equity markets will get a little nervous here. But the 150,000 number doesn't increase the odds of that at all."
"I don't know about (September) wiped off the table because the Fed, some of the rhetoric we've seen has been pretty mixed the past couple of weeks. Our view is that they do hold off until later this year, possibly even December or early next year before raising rates. We think slow, steady growth until the end of the year is still a good backdrop for equities, but taking a sigh of relief that it wasn't a blowout number which really would have ratcheted up September and possibly other increases later this year."
TOM PORCELLI, CHIEF US ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
"It was a middling report at best, particularly as it relates to the conversation on the Fed. There were no positive standouts here, the key underlying data were all pretty soft as well. I don't think this is the kind of the report that the Fed wanted to see ahead of a hike in September, the contours are just too squishy. This should put to rest the conversation on September."
STOCKS: U.S. equity index futures rise
BONDS: 2-year and 10-year Treasury yield curve steepens
RATE FUTURES: Fed funds futures prices rise across the term structure. September contract up 0.5 basis point; December up 2 basis points. Probability of a September hike dips to just 18 percent from around 24 percent before the release
FOREX: The dollar weakens against the euro and yen
(Americas Economics and Markets Desk; +1-646 223-6300)