US Nonfarm Payrolls miss estimates…again

For the second month in a row, the US economy has generated fewer jobs than expected. This comes just as the point at which the members of the FOMC would have been hoping to taper asset purchases with confidence that the economy is in good shape. It may not end up being plain sailing after all.

Here are the highlights from the US Employment Situation:

  • Nonfarm Payrolls fell to 194,000 (500,000 exp) from an upwardly revised 366,000 last month
  • Unemployment down to 4.8% (5.1% exp) from 5.2% 
  • Average Hourly Earnings +0.6% on the month with YoY in line with forecast at +4.6%
  • Participation Rate falls to 61.6% (61.8% exp) from 61.7%.

Employment Situation

This is a mixed jobs report. The headline jobs growth is much weaker than expected, although there was a +131,000 revision to last month’s data which mitigates this miss to an extent.

The good news in the report though can also be mitigated to an extent. Unemployment falling more than expected is good news, but the participation rate has also fallen. Fewer people looking for work tends to end up with fewer unemployed.

Wage growth up to 4.6% is still a function of the shortage of labor, whether it is skilled labor or overall supply.

What does this mean?

This will be disappointing for the Federal Reserve, but it will not be a deal-breaker for tapering asset purchases. Fed members have spent several weeks talking up the end of tapering this year, this is not a jobs report that scuppers that idea.

What it may do is confirm that the Fed will announce the taper in the November FOMC and for it to start in December (rather than straight away). Then the Fed can have two more jobs reports just to be sure. A December start to reducing asset purchases is what we have been arguing for several months.


Initial Market Reaction

The reaction has been one of predictable disappointment. US yields lower, USD falling, Gold higher. Equities have been choppy and are currently trading lower. 

However, we believe that these moves will be fairly quickly absorbed by the market. Our assessment that it does not change much suggests that these near term moves may continue, but will subsequently retrace.

  • US 10 year yield just under -3 basis points lower
  • EUR/USD +5 to +10 pips higher
  • Gold +$15 higher
  • S&P 500 futures -5 to -10 ticks lower

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