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August Labor Report

09/09/2013

On Friday morning, September 6, the Department of Labor released its August labor report. Overall, the report did not meet consensus estimates and the prior month’s previously reported numbers were revised lower. The labor force participation rate fell to its lowest level since August 1978, helping lower the overall unemployment rate to its lowest level since December 2008.

Let’s take a look at the headline numbers…

  • August nonfarm payrolls (Figure 1) rose +169,000
  • August private payrolls rose +152,000
  • The unemployment rate (Figure 2) fell to 7.278% from 7.390% in July
  • The labor force participation (Figure 3) rate fell to 63.2% from 63.4%
  • The underemployment rate fell to 13.7% from 14.0%

Revisions…

  • July nonfarm payrolls were revised lower to +104,000 from a previously reported +162,000
  • July private payrolls were revised lower to +127,000 from a previously reported +161,000
  • June nonfarm payrolls were revised lower to +172,000 from a previously reported +188,000

Composition of the August report...

  • August manufacturing jobs were +14,000 better than the consensus estimate of +5,000
  • July manufacturing jobs were revised lower +6,000 to now (-16,000)
  • August government jobs were +17,000
  • Average weekly hours worked climbed to 34.5 from 34.4 last month
  • Average hourly earnings rose +2.2% year on year; last month’s figure was revised higher to 2.0% from 1.9% previously reported
  • Average hourly earnings rose +0.2% month on month; last month’s figure was revised higher from (-0.1%) to 0.0%
  • Full time hiring rose +118,000
  • Part time hiring fell (-234,000)

Commentary

Friday’s labor report does not provide enough evidence to alter my expectation that the FOMC will announce its intention to initiate tapering. So far in September there has been a series of stronger-than-expected domestic economic numbers that support the FOMC beginning to reduce its monthly bond purchases.

  1. Construction spending +0.6% month on month
  2. ISM manufacturing (Figure 4) rising to 55.7, its highest level since June 2011
  3. ISM non-manufacturing (Figure 5) rising to 58.6, its highest level since December 2005
  4. U.S. vehicle sales (Figure 6) at 12.44 million, its highest level since September 2007
  5. Initial jobless claims (Figure 7) at 323,000, near the 322,000 reported on August 9, which was the lowest level since January 2008 

Additionally, recent European and Chinese economic data is rebounding. I do not expect the uncertainty of Syria will impact the FOMC’s decision. Fiscal policy and geopolitics are the two headwinds currently facing the capital markets (Figures 8 and 9) and neither can, or should, be addressed by the FOMC. 

Currently, the FOMC is purchasing $40 billion worth of mortgage bond-related assets. That figure will not change. However, I expect the current $45 billion worth of monthly U.S. Treasury purchases will be reduced to $30 to $35 billion. I also expect the FOMC to give back to the markets with its other hand the comfort of either extremely dovish language or an actual change to its current outcome-based guidance, such as lowering the unemployment threshold from 6.5% to 6.0%.

 

Figure 1.1 U.S. Nonfarm Payrolls, 2007-Present
9-9 Terranova 1.1
Source: Bloomberg

Figure 2 U.S. Unemployment Rate, 2007-Present
9-9 Terranova 1.2
Source: Bloomberg

Figure 3 U.S. Labor Force Participation Rate, 1978-Present
9-9 Terranova 1.3
Source: Bloomberg

Figure 4 U.S. ISM Manufacturing, 2011-Present
9-9 Terranova 1.4
Source: Bloomberg

Figure 5 U.S. ISM Non-Manufacturing, 2005-Present
9-9 Terranova 1.5
Source: Bloomberg

Figure 6 U.S. Domestic Vehicle Sales, 2007-Present
9-9 Terranova 1.6
Source: Bloomberg

Figure 7 U.S. Initial Jobless Claims, 2008-Present
9-9 Terranova 1.7
Source: Bloomberg

Figure 8 S&P 500 INDEX (SPX), SEPTEMBER 2012 TO SEPTEMBER 2013
9-9 Terranova 1.8
Source: Bloomberg

Figure 9 U.S. 10-Year Treasury Yield, 2010- Present
9-9 Terranova 1.9
Source: Bloomberg

 

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