Equity Markets Fall After Weak Jobs Figure
US equity markets declined after an employment report showed that the pace of jobs growth slowed markedly in August. A few minutes after the opening bell, the S&P 500 was down 0.22%, or 4.35 points, to 1993.30. While the Dow Jones Industrial Average declined 0.21% to 17,033.78. European markets had previously veered into negative territory following yesterday’s ECB-influenced gains.
Friday, September 5, 2014 - 00:00
A survey of businesses pointed to a 142k rise in employment this August (Consensus: 225k). Jobs growth has averaged 177k so far in the third quarter following figures of 266k in the second, and 190k in the first. The rise was largely concentrated in the professional and business services and healthcare industries, which together accounted for over half of the increase. The manufacturing and retail sectors both suffered net declines in employment. However, those with a job benefitted from rising real wages. Average hourly earnings were up 2.1% in the twelve months to August, which is 0.2 percentage points higher than the annual inflation rate in July, suggesting a degree of labor market tightening. August inflation data are due September 17.
A separate, less comprehensive, survey of households pointed to a 16k increase in employment. This figure, coupled with a 74k decline in the labor force, led to a 0.1 percentage point decline in the unemployment rate. The participation rate also dropped 0.1 percentage points, to 62.8%, perhaps indicating less spare capacity in the economy than previously thought. Data on those without work 27 weeks or more painted a more optimistic picture. The number of long-term unemployed declined by 192k to 3.0 million, accounting for 31.2% of overall unemployment. Both these figures are down considerably over the past year, suggesting that the recession’s impact on the labor may not leave permanent damage.
Despite today’s weak number, the longer term picture for employment remains healthy. Monthly gains have averaged 226k over the past six months, and 207k over the past year. Further, alternative measures of economic activity in August pointed to robust activity. Yesterday, the ISM non-manufacturing survey rose to 59.6 (Consensus: 57.5), its highest level in almost a decade. Its manufacturing equivalent had earlier indicated strong growth, rising 1.9 points to 59.0 (Consensus: 56.8). How much weight the Federal Open Market Committee places on these various factors, when it meets in the middle of the month, remains to be seen. But individual member forecasts for interest rates and unemployment, due with the policy announcement, should provide further clarity on the outlook for monetary policy.
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