NEW YORK, Sept 4 (Reuters) – U.S. job growth accelerated sharply in August while the unemployment rate held steady at 4.1%, pointing to a stable labor market and keeping an interest rate hike from the Federal Reserve this month on the table.
Nonfarm payrolls surged by 162,000 jobs last month after an upwardly revised rise of 21,000 in July, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls would increase by 56,000 after a previously reported drop of 23,000 in July.
Labor market momentum had decelerated after surging in the spring, partly blamed on the oil price shock and supply chain strains from the U.S.-led war with Iran. Short-term interest-rate futures now imply about a 59% chance of an increase in the U.S. policy rate at the Fed’s September 15-16 meeting, up from about 55% before the Bureau of Labor Statistics report.
REACTION:
STOCKS: Major U.S. indexes were narrowly mixed after the report. The S&P 500 was off 0.1% and the Nasdaq composite was up 0.1%.
BONDS: U.S. Treasury yields rose on the news, though the increases moderated as the morning progressed. The 2-year Treasury yield, most sensitive to the market’s expectations of Fed rate action, rose 5 basis points to 4.38% after earlier rising 8 basis points. The 10-year Treasury yield rose 1 basis points to 4.776%. The 30-year yield was down 0.5 basis point to 5.239%.
FOREX: The dollar index rose 0.2% to 99.12.
COMMODITIES: The gold price fell 1.2% to $4,418, reversing some recent gains.
COMMENTS:
NOEL DIXON, SENIOR MACRO STRATEGIST, STATE STREET, BOSTON:
“I don’t think this number changes anything really. It’s all going to be about CPI, because in today’s number the unemployment rate stayed steady, but if you look at wages year over year, that’s the lowest since June 2021. So if Waller and Warsh and Williams, who I think are very influential, wanted to hang their hat on something, they could hang it on that and then basically focus all their energy on the CPI next week.
“It’s all going to boil down to what that core number is going to be next week and I think the markets are going to react accordingly.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH IN FAIRFIELD, CONNECTICUT: “I think it’s a good sign that the economy is holding up, that it’s not collapsing, despite the fact that we have higher prices.”Now you’re having to contend with market participants that are worried that the Fed is going to use this as a sort of a gateway to raise interest rates. We have higher inflation, we have steady employment. We have the ability to raise interest rates. “I think that’s a ridiculous move by the Federal Reserve if they do take it in September. One interest rate hike is not going to counteract the inflation caused by a decrease in supply of energy or oil.” BROCK WEIMER, ANALYST, INVESTMENT STRATEGY, EDWARD JONES, ST. LOUIS, MISSOURI:
“The August jobs report was positive across the board, in our view. The 162,000 gain in nonfarm payrolls was broad-based across goods-producing and service-providing sectors. We also received upward revisions to payroll growth for June and July, suggesting to us that hiring trends have remained steady throughout the summer. It was also encouraging that the unemployment rate held steady at 4.1% despite an increase in the labor force, signaling to us that widespread layoffs remain limited.”
BRET KENWELL, US INVESTMENT ANALYST, ETORO, NEW YORK:
“The August jobs report was a step in the right direction, even if investors interpret it through a ‘good news is bad news’ lens, potentially weighing on risk assets like stocks and recently revived cryptoassets like Bitcoin. Regardless of how investors view the labor market, the Fed considers it broadly consistent with full employment, and today’s report will likely reinforce that view. In the Fed’s eyes, the labor market is holding up, which means inflation remains the bigger problem.
“Next week’s CPI report will be closely watched with the Fed’s interest-rate decision looming in mid-September. With rate-hike odds currently near 50-50, inflation data may carry more weight than the jobs report in shaping the Fed’s next move. There’s still work to do before the labor market can be considered fully healthy, but the August jobs report reinforced the idea that it remains stable.”
JAMIE COX, MANAGING PARTNER AT HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA:
“This is a slider in the dirt for the Federal Reserve as it contemplates interest rates later this month. There are several board members who will swing (and miss) at this pitch to advocate for higher short terms rates. The data support a hold, not a hike.”
BRAD CONGER, CHIEF INVESTMENT OFFICER, HIRTLE & CO., BRYN MAWR, PENNSYLVANIA:“August non-farm payrolls were stronger than expected. The headline number affirms Chairman Warsh’s assertion that the FOMC does not need to worry about the employment side of the mandate. Monetary restraint should depress term premiums/breakevens and help long duration outperform.
“More interesting is the composition. If you squint, you might see the outlines of the AI displacement. Sectors with high AI adoption (information, financial) were weaker. Sectors that are building/equipping/powering data centers (construction, manufacturing, utilities) were stronger. That should support incomes in the lower leg of the K.”
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK:”The numbers ended up being more than three times what was expected and that certainly has added to the confusion of what the Fed will be doing, mainly because the Fed has told us that it wants to focus on inflation over payrolls. Now that payroll numbers are substantially higher, I think that that adds to the possibility that the Fed will be at least considering.
“The market has turned down because I think that indicates that investors are concerned that the Fed now has more ammunition to raise rates or at least less ammunition to keep rates steady.
“The real question is what happens to the market after next week’s inflation data, because we really don’t have any earnings left and the Fed meeting won’t be until the week after. So the only thing that the market can focus on is the inflation data for next week.”
GARY SCHLOSSBERG, GLOBAL STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, SAN FRANCISCO:”We attributed some of the weakness in the job market to the productivity gains that we’re beginning to see from the introduction, the absorption of artificial intelligence into the economy. But this report simply reinforces the view that the economy has had a good deal of momentum coming through the summer.
“With oil prices moving up, though, that does run the risk of squeezing household incomes a bit and slowing consumer spending, which hasn’t been spectacular, but certainly supported.
“Today’s report going into the meeting, I think certainly puts more pressure on the CPI to come in very friendly to avoid a rate increase by the Federal Reserve. I think if there are signs that in consumer prices inflation is moving up, that just reinforces the view that the Fed will be raising rates on September 16th.”
JOSH STEVENS, CHIEF INVESTMENT OFFICER, CRESALTA INVESTMENT MANAGEMENT, GREENWOOD VILLAGE, COLORADO:
“This is obviously a very volatile report, but it does mean that at this point the Fed’s focus is going to be on inflation.
“The stakes are going to stay high for the inflation data next week. The argument about the labor market remaining weak has some validity, but if employment shows strength in next few months, we’d see a pickup in wages, and that would get the Fed’s attention.
“This shows a positive direction for the overall economy. Things got a little bit disjointed with the Iran war but it does seem like some of the momentum we saw in the beginning of the year is back.”
CHRISTOPHER HODGE, CHIEF U.S. ECONOMIST, NATIXIS, NEW YORK:
“Even after July’s report, most policymakers seemed sanguine about the labor market so inflation will clearly still be the primary driver of near-term policy. A softer print today could have given some wiggle room on what was considered to the an acceptable core CPI print, but clearly we didn’t get that. Instead, the onus will continue to be on the doves to get a disinflationary print that justifies another hold – we are putting that bogey at about 20bps. Absent that, the Fed will likely hike in September.”
TIM URBANOWICZ, CHIEF INVESTMENT STRATEGIST, INNOVATOR ETFS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“Today’s report was strong, and we could see markets take a react first, ask questions later approach. but once the dust settles, we think investors will realize the broader trend of labor market rebalancing is still intact.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“This is a strong report considering market consensus, and a strong rebound from the previous month. Hourly wages, not a problem. That’s actually positive here.
“It shows that the labor market is solid. There’s no evidence here of rising wage inflation, even though they’re a little bit higher than expected on a yearly basis, but 3.1% is more or less what we’ve had for a sustained period of time. So I don’t think this will be a problem for the Fed, and certainly it shows that the jobs market is in solid condition.
“Remember next week we have the CPI and PPI and I expect them to more or less be a repeat of what we saw in July and August. And if that’s the case, I think that the Fed stays on hold. (Fed Chair) Kevin Warsh certainly talked a tough talk on inflation, but he’s in no real hurry to raise rates, and I think he’s going to hold out.”
BRIAN JACOBSEN, CHIEF ECONOMIC STRATEGIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“The drop in employment in July was an illusion. That’s the problem with trying to trade the headlines. Data get revised. The drop in local education was a seasonal adjustment illusion.
“The index for aggregate hours and aggregate earnings both advanced nicely.
“The labor force participation rate improved, but it’s hard to believe the labor force increased by 683,000 in August. The BLS has some soul searching to do when it comes to seasonal adjustments.
“If there’s a cloud behind the silver lining of the report, it’s that the number of people who have been unemployed for 27 weeks and over increased by 159,000. A “no-hire, no-fire” situation is OK for those with jobs, but tough for those without.”
(Reporting by Lucia Mutikani, Rashika Singh, Sudeshna Ghoshal, Karen Brettell, Suzanne McGee, Ragini Mathur, Medha Singh, Tharuniyaa Lakshmi, Saeed Azhar, Stephen Culp, Niket Nishant; editing by Colin Barr)
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