There was a lot of important information on the U.S. economy released this week, but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America rose by 201K payrolls in August, a larger increase than expected but there was also a net downward revision of 50K hires to the prior two reports. As a result, payroll growth has averaged +185K during the past three months, the weakest reading of 2018 but still higher than the 2017 average (+181K) and comfortably above Federal Reserve officials’ estimates for what is needed to keep up with U.S. population gains. Moreover, this was the 95th consecutive month of job growth in America, one of the longest streaks in U.S. history.
As for joblessness, the official unemployment rate (U-3) held at 3.9 percent in August, and the underemployment rate (U-6) slid to 7.4 percent, both of which are at the best levels of the current business cycle. With respect to wages, average hourly earnings rose by 0.4 percent last month, better than anticipated and enough to lift the year-over-year pace of growth to a roughly 9-year high (2.9 percent). Those gains are likely to accelerate as more businesses boost worker compensation in an attempt to compete in the tightening labor market. More importantly for the markets, today’s job report will only make it easier for the Federal Reserve to justify additional interest rate increases this year. In fact, the market-implied probability of another hike at the September FOMC meeting rose to 99.0 percent after this morning’s release of the employment data, and the odds of another increase in December lifted to 73.7 percent. Stocks’ initial, knee-jerk reaction to the job report was to sell off due to investor concerns that the strong economy will cause the Fed to ramp up the pace of hikes in 2019.
Sources: Econoday, U.S. DoL, Twitter, Bloomberg, CME, FRBSL
Post author: Charles Couch