A James Alexander post
The auguries for the August payrolls have not been good judging by industry-side surveys of August activity, and they still disappointed expectations.
Monthly jobs growth was relatively weak. With the participation rate flat there were not enough jobs created to keep pace with entries into the labour force and so the unemployment rate ticked up to 4.9%. No big deal and certainly nothing to move markets or expectations about Fed action.
What should trigger Fed action and more concern generally is the very weak Average Weekly Earnings (AWE) number. It is derived from two more commonly watched numbers, Average Hourly Earnings (AHE) and Average Weekly Hours (AWH). Hourly earnings had made some progress over the past 18 months, rising from a risible 2% YoY growth to a slightly less risible 2.5% or even 2.6%. Hawks had gotten very excited seeing incipient take-off in wage inflation, especially when annualizing a 3-month trend etc. More careful analysis showed that this very modest growth had been accompanied by lower hours worked per week, thus suppressing AWE growth to just 2% or so.
The August data showed both weaker growth in AHE and another drop in AWH (plus a revision down in the July hours) leading to weekly earnings growth dropping from 2.1% YoY to just 1.5%. It has to be remembered that this is nominal growth and so really depressing for wage earners. Other non-wage costs are rising, like medical cover but it remains incredibly dull for employees.
Incredibly, and perhaps tellingly about the market’s view of the FOMC, the chances of a September rate rise stayed put at 24% but the chances of a December hike rose from 54% to 60%. The market is always right, after all. Both equities and the USD initially fell, but then went up, as might have been expected. Even the long bond yield initially rose, before paring back.