The market seems to be cheering the surprisingly weak jobs report in the hope that it will lead to a more favorable Fed policy. But in order to reach that conclusion, you first need to believe this jobs read. And I find it extremely hard to believe it.
A total of 142K jobs were created in the economy, materially below consensus estimates of around 225K and below the 212K average of the preceding 12 months. To add to the surprising nature of this jobs read, the tallies for the prior two months were revised lower by a total of 28K. It is very hard to square this jobs data with other economic readings like the ISM surveys, motor vehicle sales, weekly initial jobless claims and anecdotal evidence from the corporate sector in general.
In terms of industries, the August gains were in the professional and business services and healthcare industries while retail lost ground. The manufacturing sector was unchanged following the 28K gain in July. Construction added 20K jobs in August, roughly in-line with the preceding 12-month run rate of about 18K.
[See: Proof of a Structural Change in the U.S. Workforce]
The average workweek remained unchanged at 34.5 hours for the 6th month in a row, while average hourly earnings edged up 6 cents to $24.53. Average hourly earnings have increased by +2.1% over the past year. The labor force participation rate was 62.8%, essentially unchanged since April. The unemployment rate remained unchanged at 6.1%, down 1.1% over the preceding 12 months.
The market’s positive knee-jerk reaction to the report reflects the Fed angle – that it could potentially be pointing towards a delayed QE tightening cycle. I don’t agree with this view as I don’t believe this report is reflective of real ground realities. Given how contrary this report is to what we have been seeing elsewhere from the economy lately, I would be expecting this report to be revised next month — and revised higher.
