One of the highlights of the monthly economic calendar is the Bureau of Labor & Statistics’ Employment Situation report, an indicator that is watched closely by the financial markets and the Fed alike for its timeliness and its tight correlation with GDP. Today’s report disappointed in a big way at the headline level, with payroll growth falling well short of expectations and coming in at the lowest monthly level so far this year.
By Peter Martin
Friday, September 5, 2014
Non-farm payrolls grew by just 142,000 jobs in August, versus expectations for 230,000 and compared to gains of 212,000 in July and 267,000 in June. Despite the softness of this number, the unemployment rate dropped to 6.1% from 6.2%, in line with forecasts, with a 192,000 decline in the number of long-term unemployed to 3.0 million.
The situation is muddied by the volatility we’ve seen in August in recent years (there were huge subsequent revisions made to initially-reported August data in 2011 and 2013), but as things stand this report looks decidedly weak, which plays into the hands of doves at the Fed, adding weight to the case for keeping monetary policy accommodative for longer. The next FOMC meeting begins on Tuesday 16 September, with a policy decision announced the following day.
The downbeat jobs report has eroded the dollar today, sending it lower against most major currencies. By mid-afternoon in New York, EUR/USD was up 0.12% at 1.2959, USD/CHF was down 0.09% at 1.0883 and USD/JPY was off by 0.23% at 105.01.
The euro’s gain against the dollar today helps to pare a weekly loss after yesterday’s dramatic fall in the value of the shared currency that was sparked by the ECB unexpectedly trimming its benchmark interest rates to new record lows. Faced with sluggish growth in the Eurozone and worryingly low inflation with a subdued outlook, the ECB cut its key refinancing rate by 10 basis points to 0.05%, with corresponding cuts to its deposit and marginal lending facilities (which dropped to -0.20% and 0.30% respectively), and announced the purchase of a broad portfolio of asset-backed securities and covered bonds, set to begin in mid-October. ECB President Mario Draghi hopes this action will firm up medium to longer term inflation expectations, but said in his press conference yesterday that ‘Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate.’
Bucking the trend of most major currencies today, the Canadian dollar lost ground against the US dollar. USD/CAD rose 0.09% to 1.0884 after Statistics Canada announced its own disappointing set of employment data and a PMI report pointed to contraction in August for the Canadian economy. Canadian employment declined last month, falling 11,000. Most of that drop was down to declines in part-time jobs. July’s report was subject to an extreme upward revision, though, and the volatility we have seen of late in this report clouds the trend to some degree.
Meanwhile, the Ivey PMI for August slipped to 49.1 from 50.4 in July, dropping below the 50-mark that separate contraction from expansion. There has been some speculation that the Bank of Canada might next act to tighten, though there has been nothing suggested by the central bank itself to support this view. The weakness in today’s Canadian economic data would suggest the BoC is unlikely to make any such moves in the near future.
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