Vital Statistics:
Stocks are lower this morning after a weak employment report. Bonds and MBS are up.
The economy added 142,000 jobs in August, which was below the 160,000 consensus estimate. Private payrolls rose 118,000, which was again below estimates. As usual, the previous two months were revised downward with June payrolls revised from 179k to 118k and July revised down from 114k to 89k.
If you look at the actual number of people employed over the past year (in other words, ignoring the statistical birth / death adjustments the number of people collecting paychecks fell from 161.5 million to 161.4 million. The total number of paychecks collected has fallen by 66,000 over the past year.
The labor force participation rate was steady at 62.7% and the employment-population ratio was flat at 60%. Over the past year, the employment-population ratio has fallen by 0.4%. Average hourly earnings rose 0.4% for an annual increase of 3.8%.
The bond market rallied on the report, with the 10 year yield falling to 3.67%, however it is giving back some of its gains.
The services economy improved in August, according to the ISM Services Report. “For a second straight month, the slow growth indicated by the Services PMI® reading was reinforced by panelists’ comments. Slow-to-moderate growth was cited across many industries, while ongoing high costs and interest-rate pressures were often mentioned as negatively impacting business performance and driving softness in sales and traffic. Although the Inventories Index increased by 3.1 percentage points into expansion territory in August, many respondents indicated their companies are still actively managing down their inventories.”
JP Morgan economist Michael Feroli thinks the Fed should cut rates by 50 basis points this month. “We think there’s a good case that they should get back to neutral as soon as possible,” the firm’s chief U.S. economist told CNBC’s “Squawk on the Street” on Thursday, adding that the high point of the central bank’s neutral policy setting is around 4%, or 150 basis points below where it is currently. “We think there’s a good case for hurrying up in their pace of rate cuts. If you wait until inflation is already back to 2%, you’ve probably waited too long,” Feroli also said. “While inflation is still a little above target, unemployment is probably getting a little above what they think is consistent with full employment. Right now, you have risks to both employment and inflation, and you can always reverse course if it turns out that one of those risks is developing.”
The September Fed Funds futures now are predicting a 59% chance of a 50 basis point cut and a 41% chance of a 25 basis point cut. December futures are pricing in 125 basis points in cuts this year.
