- The US job report was much weaker than expected showing only a gain of 142k (consensus 230k, Danske 260k) and net revisions of -28k.
- The household survey was also weak. Unemployment declined to 6.1% from 6.2% as expected but it reflected an only small gain in employment of 16k and a decline in the participation rate to 62.8% from 62.9%.
- The small gain in employment is a bit at odds with most other labour market indicators that are pointing to a strengthening labour market currently: Low jobless claims, rising ISM employment indices, rising jobs plentiful vs hard to get balance and rising hiring plans among small businesses.
- Especially service employment was weak rising only 112k driven lower by a decline in retail trade of 8k. This was a big surprise given the also weak number last month and strong level of ISM employment for the service sector.
- Wage growth rose in line with expectations at 0.2% m/m and July earnings were revised slightly higher to 0.1% m/m from 0.0% m/m
- Overall we believe that the state of the labour market is better than what todays number is painting. Our models suggest the underlying rate of job growth above 250k. Nevertheless for the Fed it throws in some more uncertainty about the true strength of the labour market and will reinforce a wait-and-see stance. Hence the odds of a change to the forward guidance in September is lower now, although it can’t be ruled out.
Our payrolls model points to job growth above 250k
Big divergence between ISM service employment and actual employment
Unemployment continues to trend lower
A decline in participation drove the decline in unemployment in August
Still moderate wage growth despite rising compensation plans
Consumers see improving labour market
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