US Jobs Report – Nothing spectacular about it

Friday’s nonfarm payrolls report for July was a mixed bag with the monthly number of jobs falling below expectations. However, that was offset by the unemployment rate staying put at 5.3% alongside an upward revised number for June from 223k to 231k. The markets took the jobs report in their stride as expectations continue to rise for a Fed rate hike in September.

With the July FOMC statement noting that there was need for ‘some’ improvement in the jobs report, it is expected that with the current trend in the average number of jobs being created alongside a steady unemployment of 5.3%, sits comfortably well within the Fed’s target rate of 5.2% – 5.3%. The unemployment rate remained unchanged at 5.3% after the rate fell by 0.2% in June, marking one of the lowest levels of unemployment in the US seen since April of 2008.

Looking deeper into the jobs report, most of the gains were from the industrial sector which gives a glimpse of a healthier economy or rather a balanced one. Within the many sub-components of the jobs report, the part-time employment rate also fell to a new low in July. Most of the gains however came from the retail and healthcare sector while the mining sector continued to be a drag on the labour markets shedding jobs.

The only exception was the wage growth which remained sluggish at best. For the year, the average earnings stand at 2.6% on the back of a weak Q2 employment cost index which grew at a pace of 0.2%.

Between now and the September FOMC monetary policy meeting, there will be about two inflation reports along with the August jobs report due in early September. And in the meantime, the markets remain largely divided in terms of rate hike expectations between either in September or in December. The July jobs report thus hasn’t changed the status quo much.

The week ahead will see quite a few Fed members speak and among them will be Atlanta Fed President, Dennis Lockhart. In his comments last week, he struck a very hawkish tone noting that the Fed was ready to move in September as long as the US economy does not deteriorate. He also noted that the Fed needs to move fast  on Interest rates in order to prepare itself for the next downturn as the Central bank wouldn’t want to see the Fed funds rate stuck at the near zero interest rate policy.

The US Dollar initially surged on the jobs report, rising from near 97.95 to close above 98.4 but towards the late Friday evening session, the US Dollar Index gave up its gains to close the week near 97.65, posting a weekly gain of 0.35%. With the Index trading above the key support that was briefly tested during the NFP release near 97.6 through 97.35, we could expect prices to consolidate above the support zone. However, there are significant risks in the event the US Dollar Index breaks below the support level that could easily see a test towards 96.55.