Jobs report drill-down: Soft, yes, but 50-basis-points soft?

Reuters

Jobs report drill-down: Soft, yes, but 50-basis-points soft?

Sep 6, 2024 at 3:44 pm GMT

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JOBS REPORT DRILL-DOWN: SOFT, YES, BUT 50-BASIS-POINTS SOFT?

Market participants got what they were waiting for on Friday, in the form of the Labor Department's hotly anticipated employment report.

As for those betting on the size of the Fed's rate cut this month, the mixed report provided fodder for both the doves and the hawks.

The U.S. economy added 142,000 jobs USNFAR=ECI last month, or 11.3% fewer than analysts expected.

This stands on the shoulders of July's downwardly revised 89,000 job gains (the originally stated 114,000 was low enough to convince investors that the sky was falling and prompt a steep sell-off, one might recall).

It marks the third consecutive month that payrolls fell short of estimates, and the fourth of the last five that landed south of the 200,000 mark.

Digging below the topline, the service sector was responsible for 91.5% of the 118,000 total private job adds, with manufacturing and retail sectors shedding 24,000 and 11,100, respectively.

"The labor market is cooling at a measured pace," writes Jeffrey Roach, chief economist at LPL Financial. "Shortly after this release, markets were pricing in a slightly higher chance of a 50 basis point cut at the next Fed meeting compared to yesterday’s pricing."

"However, our view is the Fed will likely cut by 25 basis points and reserve the right to be more aggressive in the last two meetings of the year," Roach adds.

At last glance, financial markets have baked in a 51% likelihood of a 50 basis point rate cut at its upcoming September meeting, and a 41% chance of a super-sized 50 bp decrease, according to CME's FedWatch tool.

But as hiring cools, wage growth is heating up.

Average hourly earnings growth rose on monthly and annual bases by 0.4% and 3.8%, respectively.

Both readings were 20 basis points hotter than consensus.

But remember, retail and manufacturing jobs - usually not the highest paying gigs - actually decreased last month, which could have pushed average hourly wages higher.

At any rate, it's the first taste of August inflation and it reiterates the notion that while the overall trend is back toward Powell & Co's 2% annual target, the road is strewn with rocks and detours.

The unemployment rate USUNR=ECI ticked down to 4.2% from 4.3% as expected, even as the labor market participation rate held firm at 62.7%.

This suggests that while the labor market is evidently cooling, it's not exactly sailing over a cliff, which gives the Fed some latitude regarding the size of its expected rate cut at this month's policy meeting.

"The speed at which the Fed will travel with regards to policy rates remains unclear," says Charlie Ripley, senior investment strategist at Allianz Investment Management. "Investors remain divided on how quickly the Fed should lower rates and the mixed employment data today did not augment the argument for either side, which is why the odds of a 50 basis point cut at the September meeting looks like a coin toss for now."

Broken down by duration, the freshly unemployed saw their slice of the total jobless pie increase, from 33.0% to 34.3%, lending some cred to Thursday's jump in planned layoffs as reported by Challenger Gray.

Average unemployment duration inched higher though, to 20.8 weeks from 19.6, hinting at the possibility that jobs aren't as plentiful anymore, echoing the Conference Board's most recent Consumer Confidence report.

Viewed by race/ethnicity, the Black unemployment rate dipped 20 basis points to 6.1%, while White joblessness held firm at 3.8%, resulting in a 0.2 percentage point narrowing of the White/Black jobless gap.

Unemployment among Asian Americans and those who identify as Hispanic jumped higher; to 4.3% and 5.5%, respectively.

(Stephen Culp)

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FRIDAY'S EARLIER LIVE MARKETS POSTS:

ETHEREUM, ANY TAKERS? - CLICK HERE

S&P 500 E-MINIS NEAR FLAT, PARE LOSSES AFTER US PAYROLLS - CLICK HERE

"BINARY" OUTCOME LIKELY FOR JOBS REPORT - CLICK HERE

THE BARNIER EFFECT - CLICK HERE

STOXX 600 FALLS BEFORE PAYROLLS TEST - CLICK HERE

EUROPEAN FUTURES SLIP BEFORE HOTLY ANTICIPATED JOBS REPORT - CLICK HERE

ALL ABOUT THEM PAYROLLS - CLICK HERE

premarket snapshot https://tmsnrt.rs/4cYhhSJ