The increased odds of a Fed liftoff next month following this morning’s strong jobs reading is today’s big development. Investors don’t seem to be overly concerned in their initial reaction to the ‘Fed clarity,’ but I suspect the mood will be hard to sustain as today’s session develops.
The July jobs report from the U.S. government’s Bureau of Labor Statistics (BLS) came in-line with expectations, with ‘headline’ job gains of 215K for the month vs. the prior month’s tally of 231K (which was revised higher: 231K vs. 223K originally). The unemployment rate remained unchanged from the month before at 5.3%, but is now down 0.9 percentage point from the year before. If we keep getting monthly job gains in the 200K vicinity over the coming months, we will be at 5% unemployment by year’s end. The average monthly job gain over the last 12 months has averaged 245K.
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The retail, healthcare, professional and technical services, and the financial services industries were big jobs producers this month, with oil and gas following the expected negative path and construction and government payrolls little changed. Mining employment fell for the 7th month in a row, down by 5K in July, bringing the year-to-date losses in this space to 78K (mining jobs were up 41K in 2014). The labor force participation rate was unchanged as well from the month before at 62.6%. The average workweek edged up and average hourly earnings increased by 5 cents to $24.99, up +2.1% from the same period last year.
This report clearly meets the Fed’s threshold of an improving labor market, leaving them with no reason to step back from what they are expected to do at the next meeting in mid-September. There will be another BLS report in early September and many have started saying that the early September jobs reading (the August jobs report) typically is the most volatile of this series. But that’s hardly something that is unknown to the Fed. As such, today’s report effectively guarantees that we will get the liftoff next month.
