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NFP Recap: “Steady as she goes” for the Fed

As we noted yesterday ahead of today’s NFP release, [There have been] no signs that a pickup in price pressures is imminent, [and therefore] the Federal Reserve is content to stick with its gradual, every-other-meeting rate hike schedule…”. Today’s US jobs report will do little to blow the Fed off course.

Tackling the headlines first, overall job creation came in lower than expected, with the BLS estimating that the US economy created only 157k new jobs in July, below economists’ expectations of a 193k increase. That said, revisions to the previous two months’ reports added 59k total jobs, bringing the three-month average of job creation to 224k, above the recent trend level.

Meanwhile, the much-ballyhooed average hourly earnings figure printed directly at the expected 0.3% month-over-month (2.7% year-over-year rate). However, last month’s reading was revised a tick lower to 0.1% m/m, keeping overall wage growth stubbornly low, despite what economic theory would suggest. The annualized rate of wage growth over the last three, six, and twelve months has been just 2.9%, 2.6%, and 2.7% respectively, showing no imminent sign of accelerating.

Market Impact

Not surprisingly for an almost perfectly as-expected report, the projected impact on Fed policy (and markets by extension) has been minimal. According to CME Fedwatch, Fed funds futures traders are pricing a 94% chance of a hike in September (up from 91% yesterday) and a 66% chance of another hike in December (up from 64% yesterday). For those who don’t follow these numbers too closely, fluctuations like this are more noise than valuable trading information.

In other markets, the dollar index is trading essentially unchanged around 95.00, with the trade headlines out of China having a bigger impact than this morning’s jobs report. US stocks are pointing to a marginally lower open and the yield on the benchmark 10-year Treasury bond is ticking down by about 2bps to 2.97%. Gold is bouncing slightly after tagging a 1-year low near $1200 earlier today.


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