The 201k rise in US non-farm payrolls edged above the median forecasts, but the 50k downward revision to the past two-months removes the gloss. It is the first August report in seven years that the initial estimate was above the Bloomberg median.
The most important part of the report was the 0.4% jump in hourly earnings, lifting the year-over-year rate to a new cyclical high of 2.9%. It will be seen as evidence that the labor market is tightening. While there was no doubt that the Fed will hike rates later this month, today’s data is unlikely to get many investors to change their outlook for the December meeting.
It is disappointing that the participation rate fell to 62.7%, matching the lows since mid-2016. The 0.2% decline, however, helped prevent a decline in the unemployment rate. It was steady at 3.9%, but the under-employment rate eased to a new cyclical low of 7.4%. This also reinforces the sense that full employment is near.
Canada also reported August jobs data. It was a mixed report. The headline loss of 51.6k jobs is deceiving. Canada actually added 40k full-time positions after losing 28k in July. The country lost 92k part-time positions after gaining 82k in July. However, it is less constructive that the participation rate slipped (to 65.3% from 65.4%) and helping lift the unemployment rate (6.0% from 5.85). Also, hourly earnings growth for permanent workers slowed to 2.6% (from 3.0%), which is the slowest since last October. The data is unlikely to turn market opinion away from expecting a hike next month.
The US dollar broadly strengthened in response to the data and the entire coupon curve rose 3-4 bp. The week’s low for the euro was set near $1.1530, and this is an important technical area. Remember there are several billion euro in options struck at $1.15 that are expiring over the next few sessions. The dollar is poking through JPY111.00, retracing the knee-jerk rally on the threat that it will move into the US trade cross-hairs. Sterling is holding in better as the change of tone we have been detecting toward Brexit may be spurring some short-covering. The Swedish krona is doing the best as positions are adjusted ahead of Sunday’s election. The strength of the US dollar is proving too much for the Canadian dollar. The market does not appear to have given up a proper run through CAD1.3200.