The Market Today

Disappointing August Jobs Data Lowers Odds of Earlier Taper


by Craig Dismuke, Dudley Carter

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In response to the Supreme Court’s recent decision to block the CDC’s national eviction moratorium, the New York State legislature passed a statewide eviction ban of its own that will run through January 15. Sticking with New York news, Amtrak said it will require employees be vaccinated. A White House health official said he expects a third dose of the mRNA to represent the final dose of the full vaccination cycle.

TODAY’S ECONOMIC DATA

Economy Adds Disappointing 235k Payrolls in August, Lowering Odds of Earlier Taper: Nonfarm payrolls rose just 235k in August, below all economists’ forecasts and adding to the fears that economic activity is slowing on the recent rise in COVID-19 cases.  Moreover, Fed Chair Powell has conditioned his preferred timing for tapering asset purchases on continued strengthening of the labor market.  It is difficult to see how this report does so.  Contributing to the weakness was a complete stalling of the job recovery in the leisure sector, which added no new jobs in August.  Included in leisure, food and dining services payrolls fell 42k.  The leisure sector continues to have 1.7 million lost payrolls including 966k lost restaurant jobs.  The retail sector was also weak, losing 29k jobs. In the education sector, where 564k jobs remain missing after the August data, only 14k jobs were recovered, down from an average of 272k per month over the past two months.  One uncertainty is the timing of the post-summer return to classrooms which may be delayed for some districts skewing the monthly results.  One of the few positive notes, manufacturing added 37k payrolls.

 

Unemployment Rate Falls to 5.2%: In the household report, the unemployment rate fell from 5.39% to 5.19% as 509k more people reported as employed, outpacing the 190k increase in the labor force.  Labor force participation held steady at 61.7%.  Average hourly earnings gained another 0.6% MoM, pushing the year-over-year rate up to 4.3%.  Average weekly hours worked were unchanged at 34.7.

 

Service Sector PMIs Expected to Confirm August Malaise: Later this morning, the service sector PMIs are expected to show weaker activity in August.  The Markit report, having already tanked from 59.9 to 52.2 in its preliminary estimate, is scheduled for 8:45 a.m. CT.  The ISM report is expected to drop from 64.1 to 61.6 at 9:00 a.m.

YESTERDAY’S ECONOMIC NEWS

Factory Orders Top Estimates with Small Revisions to Capital Goods Data: July’s factory orders report was better than expected as headline orders rose 0.4%, topping estimates for a 0.3% gain, and orders excluding volatile transportation categories increased 0.8%, besting the median forecast for a 0.5%. Within the report, the indicators of business orders of core equipment were revised from flat to up 0.1% while shipments of the same items were notched down from a 1.0% gain to a 0.9% improvement.

 

TRADING ACTIVITY

Equities Inched Higher Thursday while Treasury Yields Drifted Lower ahead of Key August Jobs Data: U.S. equities rose Thursday following solid jobless claims data as investors looked ahead to this morning’s important and uncertain payroll report for August. However, leadership among sectors shifted midday away from tech companies to energy, health care, and industrials. The Nasdaq fell behind the Dow and S&P 500 in the afternoon as tech shares faded, still rising 0.14% and posting its seventh record close in the last nine sessions. The Dow led the majors higher with a 0.4% gain while the S&P 500 followed closely, adding 0.3%. Energy was the top performer as crude prices reached one-month highs. While OPEC+ moved forward with plans to begin gradually raising production next month, U.S. inventories declined more than expected compared with last week. Additionally, Bloomberg reported that more than 90% of oil production in the Gulf of Mexico remained shuttered after closing as Hurricane Ida approached last weekend. Treasury yields reflected an apprehension ahead of the August jobs data, trading within relatively tight daily ranges and ending near session lows. The 2-year yield inched down 0.4 bps to 0.21% while the 10-year yield slipped 1.0 bps to 1.28%.

Longer Treasury Yields Jump after Noisy Jobs Report: U.S. equity futures had moved higher overnight and Treasury yields recouped a portion of yesterday’s drop, although both failed to wander far from where they started ahead of this morning’s jobs report. Stocks closed higher on the day across most of Asia, excluding modest declines for exchanges in Hong Kong and China. The private Caixin Services survey, which monitors activity as smaller- and medium-sized institutions, slumped unexpectedly into contraction. The sharp drop from 54.9 to 46.7 was discouraging, but not surprising on the heels of a similar slide in the official PMI tracking larger services businesses earlier this week. European equities strayed 0.2% lower earlier after revisions placed the Eurozone’s Services PMI at a solid 59.0 for August, below initial estimates of 59.7 and July’s 59.8, which had marked the strongest reading since 2006. Just prior to the release of the jobs data, the 10-year Treasury yield had added 1.0 bp to 1.294%, near the middle of its overnight range. As markets digested the noisy report, the 10-year yield initially tanked to new session lows but quickly turned higher. At 7:50 a.m. CT, the benchmark U.S. yield was up 3.9 bps on the day above 1.32%, at session highs.

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