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Briefing.com Summary:
*Many of the key monthly metrics for the August employment report came in stronger than expected.
*The probability of a September rate hike has increased after the August employment report.
*The 10-yr note yield revisited 4.80% in the wake of the employment report, before being met with resistance.
Interest rates went up to begin the week, and then they backed off, aided somewhat by the notion that the Fed may not raise rates at its September FOMC meeting. The ebb and flow of interest rates has been largely responsible for the ebb and flow of the stock market this week.
Coming into today, the S&P 500 is up 0.5% for the week. It looks poised, however, to give back a portion of that gain when the opening bell rings. The reason why is clear. The 10-yr note yield went from 4.75% to 4.80% in the blink of an eye after the release of the August Employment Situation report at 8:30 a.m. ET.
That report caught the market by surprise with its headline strength. Nonfarm payrolls increased by 162,000, much better than expected; the unemployment rate of 4.1% was lower than expected; the average workweek at 34.4 hours was higher than expected; and the 0.3% increase in average hourly earnings was as expected.
The quick takeaway by the market is that this report just might persuade the Fed to raise rates at its September FOMC meeting. The key takeaway, though, is that a rate hike in September is not assured by this August data. To that end, the 3-month average for total nonfarm payrolls was still just a modest 71,000, there was a moderation in average hourly earnings growth to 3.1% from 3.2% on a year-over-year basis, and persons unemployed for 27 weeks or more accounted for 27.0% of the unemployed versus 25.5% in July.
Notable headlines from the August Employment Situation Report:
- August nonfarm payrolls increased by 162,000 (Briefing.com consensus: 45,000). The 3-month average for total nonfarm payrolls increased to 71,000 from 38,000. July nonfarm payrolls revised to 21,000 from -23,000. June nonfarm payrolls revised to 31,000 from 20,000.
- August private sector payrolls increased by 127,000 (Briefing.com consensus: 45,000). July private sector payrolls revised to 71,000 from 30,000. June private sector payrolls revised to 26,000 from 30,000.
- August unemployment rate was 4.1% (Briefing.com consensus: 4.2%) versus 4.1% in July. Persons unemployed for 27 weeks or more accounted for 27.0% of the unemployed versus 25.5% in July. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 7.7% from 7.9% in July.
- August average hourly earnings were up 0.3% (Briefing.com consensus: 0.3%) on the heels of an upwardly revised 0.2% increase (from 0.1%) in July. Over the last 12 months, average hourly earnings have risen 3.1% versus 3.2% for the 12 months ending in July.
- The average workweek in August was 34.4 hours (Briefing.com consensus: 34.3) versus 34.3 hours in July. The manufacturing workweek increased 0.1 hour to 40.5 hours. Factory overtime was unchanged at 3.1 hours.
- The labor force participation rate increased to 61.6% from 61.4% in July.
- The employment-population ratio increased to 59.1% from 58.9% in July.
The employment report was a bit of a shocker. The good news on nonfarm payrolls, though, was quickly interpreted as bad news for monetary policy. That reflection is evident in the 2-yr note yield jumping to 4.39% from 4.33% and the probability of a 25-basis-point rate hike rising to 58.2% from 49.4% yesterday, according to the CME FedWatch Tool. The 10-yr note yield for its part made a beeline to 4.80%, where it was met with resistance.
The upward shift in rates prompted a downward shift in the equity futures market.
Currently, the S&P 500 futures are down 18 points and are trading 0.3% below fair value, the Nasdaq 100 futures are up six points and are trading in line with fair value, and the Dow Jones Industrial Average futures are down 157 points and are trading 0.3% below fair value.
These indications point to a mixed start, then, which is befitting for an employment report that was very good at first blush but didn't necessarily ensure the Fed will raise rates later this month.
