- September Fed taper still on track, Barclays says
- Downward revisions linked to sequestration
- Payroll proxy reflects end of boost from inventory build
- Non-farm payrolls: 169,000 (Consensus: 175,000)
- Unemployment rate drops to 7.3 per cent from 7.4 per cent
- Average hourly earnings in-line with forecasts
US non-farm payrolls [NFP] rose by 169,000 during the month August, according to the Bureau of Labour Statistics, with the unemployment rate moving lower by a tenth of a percentage point, to 7.3 per cent.
Consensus forecasts had been pointing to a gain in NFP of 175,000, alongside an unchanged unemployment rate of 7.4%.
Nevertheless, for economists at Barclays Research the August employment report was softer than expected, but is sufficient to keep the Fed on track for a tapering in the pace of its purchases at the September meeting.
For their part, this is what Capital Economics had to say: "Our best guess is that the cumulative evidence of improvement over the past year will convince a majority of officials that the tapering should begin at the next FOMC meeting in another couple of weeks' time, but we are not going to pretend that this is a certainty."
The previous month's increase in NFP was revised down sharply, to show an improvement of 104,000 jobs versus the initial estimate of 162,000. The bulk of the downward revisions was driven by changes in public sector payrolls, as government payrolls in June and July were revised down by a net 38,000.
Sequestration is likely to have played some role in the heavier-than-normal revisions to government payrolls and tempers somewhat the negative signal from the downward revisions, Barclays Research added.
Upon first inspection the drop in the unemployment rate appears largely attributable to a fall in the so-called labour force participation rate, which declined to 63.2% of the work force from 63.4 in July, reaching its lowest level since May 1978.
The monthly employment report is easily the most important of all the macroeconomic reports to be published each month and often sets the tone for the rest of the month in financial markets. Despite its being a lagging indicator it is a key determinant of consumption patterns while at the same time reflecting companies' overall confidence levels, amongst other things.
Another key element of the report, average hourly earnings in the private sector, increased at a 0.2% month-on-month clip, as expected by markets. The July drop of 0.1% was revised away to show an unchanged reading.
This leaves average hourly earnings up 2.2% year-on-year, the highest reading since July 2011.
The index of aggregate weekly hours rose to by 0.1% month-on-month to 105.8.
Interestingly, on this point Barclays adds that the payroll proxy (average hours worked times average hourly earnings) shows a similar pattern, up 3.5% (3-month/3-month annualized) through August, versus a rise of 4.1% and 6.2% in the first quarter. Both series are consistent with an end to the inventory rebuild that boosted production and GDP growth in the first quarter.