The August jobs report showed that employment remains very strong, with employers adding 187,000 jobs to payroll, although gains in the previous two months were revised much lower. The unemployment rate jumped unexpectedly, while wage growth slowed. The S&P 500 opened higher at the start of Friday’s stock market movement after the jobs report, but then struggled with the 10-year Treasury yield surging.
With the job market no longer looking quite as tight, there is a good chance that the Federal Reserve will raise its key interest rate one last time.
The jobs report is hit and miss
Employment gains beat Wall Street expectations of 170K. The private sector added 179,000 jobs against the estimate of 147,000. Meanwhile, government salaries increased by 8,000.
Economists noted that employment would have looked stronger had it not been for the bankruptcy of trucking company Yellow, which cost 30,000 jobs. The film industry is also shedding jobs, including 17,000 jobs last month, amid strikes by writers and actors unions.
Average hourly earnings rose 0.2% month over month, below expectations of a 0.3% increase. Annual wage growth of 4.3% was just below expectations of a flat 4.4%.
The unemployment rate was expected to hold steady at 3.5% but jumped to 3.8%.
Employment gains in June and July were revised down by 110,000 jobs. The initially reported gain of 187,000 for July was revised to 157,000.
Taking June’s gains down to just 105,000 jobs, job gains averaged 150,000 over the past three months. Employment rates in the private sector have fallen to an average of 140,000 per month recently.
Seasonal adaptation problem?
Key job and wage numbers come from the Department of Labor’s monthly survey of employers. A separate household survey details labor force participation, employment status, and unemployment rate.
The household survey data showed an increase in the number of employed by 222 thousand people, and the unemployed by 514 thousand people, with 736 thousand people joining the labor force. The labor force participation rate, a measure of those who are working or actively looking for work as a percentage of the population aged 16 and over, rose to 62.8% from 62.6%.
However, it is possible that some of this jump in the ranks of labor force participants and unemployed reflects the difficulties of seasonal adjustment amid back-to-school. In August 2022, the unemployment rate increased to 3.7% from 3.5%, with 724,000 people joining the workforce. However, labor force participation fell by about 200,000 over the next three months.
Standard & Poor’s 500 reaction
S&P 500 futures rose 0.6% at the open after Friday’s jobs report. But the S&P 500 turned slightly negative later in the morning and the benchmark was near the flat line in late afternoon trading.
The S&P 500 is back above its 50-day moving average, up 2.3% this week through Thursday, as economic data largely supported Wall Street’s view that the Fed has done enough. Job openings eased in July, fewer people are leaving their jobs as their confidence in a new, higher-paying job wanes, and core inflation has eased to less than 3% y/y for three months.
On Thursday, the 10-year Treasury yield fell 15 basis points this week, to 4.09%.
However, on Friday morning, after initially falling after the jobs report, the 10-year yield initially fell, but reversed sharply to 4.17%. The strong constructive spending report released late Friday morning probably contributed to the hike in the 10-year yield. Following the report, S&P Global raised its estimate for third-quarter GDP growth to 4%.
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Possible rate hikes by the Federal Reserve
Prior to the jobs report, the markets were just priced in odds 11% from an additional quarter-point rate hike from the Fed on September 20, rising to 47% at the November 1 meeting.
Those odds dropped to just 7% for a rate hike on September 20th and 41% for a rate hike on November 1st after the report.
More job report details
Employment in the entertainment and hospitality sector increased by 40 thousand. Health care and social assistance employers added 97,000 jobs.
Construction jobs increased by 22,000. Manufacturers added 16,000 jobs.
Weak spots included transportation and warehousing, where salaries shrank by 34,000 jobs, and the Yellow Company’s bankruptcy was a major contributor. Temporary Assistance Services cut 18,900 jobs. The information industries, which include the motion picture industry that went on strike, cut 15,000 jobs.
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