NFP: Too soft for a September hike

From the FXWW Chatroom: After two surprisingly strong labor market reports in June and July, payrolls surprised to the downside in August. It is easy to suggest that seasonal factors were at play – August payrolls have been weaker than July payrolls now in five of the past six years and have surprised the consensus to the downside for six Augusts in a row. But in combination with weak internals and the plunge in ISM manufacturing we can probably say goodbye to the September hike and our forecast still is for the Fed to go in December.

According to the Establishment survey, employment showed a 151k advance compared to consensus of 180k and our more bullish 200k forecast. Private-sector employment was up only 126k while the two-month net revisions were -1k. Manufacturing employment fell 14k, in accordance with the employment subcomponent falling well below 50 according to the August ISM manufacturing report.

Wage growth was on the low side too with its 0.1% advance compared to the consensus forecast of 0.2%. Here we are looking for a rebound in September since a calendar quirk was the likely culprit. Compared to its level a year ago, average hourly earnings is 2.4% higher, down from 2.7% in July. While base effects will depress yearly wage growth in the near term, there is still a fair chance that earnings growth will approach 3% already at the turn of year. But that is a forecast as opposed to a present day reality and as such wage growth is not suggesting much urgency to hike rates in the very near term in our view.

Adding to the negativity, average weekly hours fell back from 34.4 to 34.3 while the unemployment rate held steady at 4.9% instead of falling to 4.8% as expected.

One way to take this report as “glass-half-full” is to note that employment growth has been very solid over the past three months at 232k. But with wage growth falling and the unemployment rate steady we are not expecting Fed officials to come out pushing for an early hike in the weeks leading up to the September meeting. [SEB]
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