Sunday, September 6, 2015

US Non-Farm Payrolls headline number lower than expected | … but all other metrics are buoyant

Today is a Federal Holiday (Labor Day) in the US, which means that many institutional traders will not be at their desks. This can result in a thin market and choppy, difficult-to-predict trading conditions.

Last Friday’s Non-Farm Payrolls report showed that a smaller number of people were hired during the month of August than had been predicted by the majority of economists who attempt to anticipate these things. At 173k new jobs, the headline figure was well below the 215k that had been expected. Anything below 200k is regarded as a sub-optimal performance. Interestingly, the outcome from the private payrolls company, ADP, which came out last Thursday, was also below 200k, at 190,000. These two do not always match as well as this.

In the moments following the release of the official government figures, the US dollar seemed to be taking a hit, as there was a reflex reaction to the numbers in the belief that they would militate against a raising of core interest rates by the Fed when its Federal Open Market Committee (FOMC) meets next week.

But key metrics are on the up-and-up

In cases like this, it is important to note that the raw number for jobs in any one month represents just one data point, and it is the overall trend that matters from the point of view of policy makers. In addition, there are other, even more important, measures of the health, or otherwise, of the US labour market. They include Average Hourly Earnings, both month-on-month and year-on-year; the Labour Force Participation Rate (always very closely watched by the Fed); Average Weekly Hours worked and; most important of all, the Unemployment Rate. This last fell from 5.3% previously to 5.1% on this reading, as against 5.2% expected.

On Friday, each and every one of those measures was shown to be going in a direction that would indicate a strengthening US economy. Whatever about the actual decision that is made regarding rates by Janet Yellen and her colleagues next week, the results released on Friday are not calculated to damage expectations for the start of an interest rate raising cycle in the US in the very near future.

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