Heisenberg Report

Not Goldilocks: Jobs Report Misses, Wage Growth Comes In Hot

It was a mixed week for the US economy headed into August payrolls, as the first contractionary ISM manufacturing print in three years (Tuesday) was juxtaposed against solid a solid services PMI and a very good ADP report.

Jerome Powell will speak later in Zurich, and Donald Trump is keen on having his cake and eating it too, where that means the economy holds up, but the White House still gets the rate cuts the administration insists are necessary to turbocharge things ahead of an election year.

Consensus was looking for 160k on the headline for August NFP, and it’s a miss. Payrolls rose 130k last month, and the unemployment rate held steady at 3.7%. Revisions lopped 15k from June’s headline and 5k from July’s.

AHE came in hot, rising 0.4% MoM. The YoY change was 3.2%, well ahead of estimates.

Generally speaking, the combination of a disappointing headline, downward revisions to the prior two months, and hotter-than-expected wage inflation is not great. That doesn’t qualify for “Goldilocks” status.

Temporary hiring for the census added 25k workers in August. Manufacturing payrolls rose 3k, missing estimates. Job gains have averaged 156k over the last three months. Private payrolls rose just 96k – that’s a three-month low, and well below estimates of 150k (the range was 110k-185k). July was revised down to 131k.

With consumer sentiment printing a Trump-era low in August and manufacturing in contraction, Trump desperately needs the labor market to hold up – especially if the dour sentiment data presages retrenchment by the consumer, which shouldered most of the burden for the economy in the second quarter.

The data comes as the presidential Twitter feed is littered with lamentations about the deleterious effects of a strong dollar. Thankfully in that regard, this is on track to be the worst week for the greenback since June.

All eyes (or ears) will turn to Powell’s speech. He’ll have the last word (among Fed officials anyway) going into the blackout period ahead of the September FOMC, where “just” a 25bp cut is expected, despite the market, Jim Bullard and Trump wanting more.

Estimates and priors