NFP Report: Job numbers holding steady, but unemployment rate rises. What's next?

The widely anticipated Nonfarm Payroll Report published by the U.S Bureau of Statistics today has shown slightly better than expected results in its headline report. After last month’s much higher than anticipated 526,000 additional jobs in July, revised down from 528,000, it was widely expected that the increase this month would still be somewhere in the vicinity of around 300,000 new jobs, and the official report shows steady growth just above those expectations, with 315,000 new employees counted.

Predictions were for no change in the unemployment rate this month - however, it actually rose slightly from 3.5% to 3.7%. This is even though the participation rate for labor increased by 0.3% to 62.4%.

Over the past 12 months, the jobs market has been in a steady recovery from the heavy closures experienced during the Covid-19 pandemic, showing an increase of over 5.8 million jobs in that time according to the Bureau’s statement. In contrast to the levels from just prior to the pandemic, nonfarm employment is now higher by 240,000 jobs than back in February of 2020, before any lockdowns commenced.

The biggest gains for August were seen in professional and business services, having added 68,000 jobs across computing, technical consulting, and research and development, among others. 1.1 million new jobs are said to have been added to the sector during the past 12 months according to the report. Conversely, it was not a great month for the legal sector, having dropped around 9,000 jobs in August.

Health care also added a decent amount of staff with 48,000, but numbers are still curiously well below pre-pandemic levels in 2020, with 37,000 fewer staff across the sector. Retail added 44,000 new jobs across August and manufacturing continues to trend upwards, having added 22,000 jobs over the last month as well. Employment across the hospitality sector stayed much the same in the August report compared to the previous month and is down since February 2020 to a staggering 1.2 million jobs or 7.2%. Little change was observed across construction, information, government, transportation services, and some of the other major industries.

Hourly wages were slightly up on average by 10 cents, to $32.36 for employees on private nonfarm payrolls, which is 5.2% higher than a year ago but still a little below expectations, as the report was hoped to have shown a gain of 0.4% instead of the 0.3% reported. The average workweek has also dropped slightly, by .1 of an hour to 34.5 hours a week.

The previous two month’s gains were also revised by the bureau and cumulatively show a drop of 107,000 positions from 926,000 to 819,000, most of which were from the month of June after further reports were collected and the results recalculated.

After the report, American and European indexes jumped, the EUR/USD briefly went above parity, and treasury yields were down.


Daily EUR/USD chart - Source: ActivTrader

How will this affect the FED decisions later on this week?

These results show an economy that isn’t really slowing down too quickly on the back of interest rate rises just yet, and many believe that this report, among others, will be enough ammunition for the Fed to raise those rates by a considerable amount again at its coming meeting in September.

FED Chair Jeremy Powel’s speech at the Jackson Hole conference touched on the employment situation, indicating that while the labor market was undeniably strong, he believed it wasn’t in balance, as demand for staff far outstripped supply.

He also went on to comment at the event last week, which is attended by central bankers, policymakers and academics from around the world annually, that while the inflation numbers were more positive in July and the economy was showing strong underlying momentum - “A single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”

This sentiment could arguably point to the Fed looking at another jump of another 50 basis points at least, if not the same 75 basis points jump that has been passed on in the last two meetings to bring rates up to their current 2.25%- 2.50%.

Powell further commented that the decisions made at the next meeting, which is on September 21st, will be dependent on the outlook as it evolves. “At some point, as the stance of monetary policy tightens further, it will likely become appropriate to slow the pace of increases.” He said.

Whether that slowing pace of rate increases happens this year or next remains to be seen, the August CPI data due in a couple of weeks will weigh heavily on the eventual monetary policy decision made later this month. Moreover, Powell declared that policy makers are ready to “forcefully” use monetary policy instruments until real improvements in inflation are seen, regardless of how long it takes.