NFP React: Big payrolls miss, Stocks pare losses, USD lower

It seems the US economy isn’t just yet getting closer to reaching substantial progress with the labor market recovery.  The US economy added only 235,000 jobs in August and the unemployment rate declined to 5.2%.  The prior month was revised higher from 943,000 to 1.053 million, which kind of takes away some of the ugliness from the headline miss.  Job growth is moderating, but the economy is still headed in the right direction.  Today’s jobs miss is mostly about the delta variant and this short-term slowdown in the economy is still widely expected to be temporary.

Fed officials were eagerly awaiting this report and now the hawks will need to wait to see more data.  Average hourly earnings rose more than expected, but that may be more attributed to more business professionals getting hired this month versus lower paying food services and drinking places jobs.

The labor participation rate remained unchanged at 61.7% and that will disappoint Fed hawks that were looking to claim further that the labor market recovery is now delivering further substantial progress.

Job growth is moderating, but Wall Street still believes this is a strong labor market. The delta variant impact on hiring and the services sector will be transitory, which means a couple more months of noisy economic readings.  The S&P 500 index didn’t know what to do with this lackluster NFP report.  US stocks struggled to hold onto earlier gains on concerns the labor market recovery will struggle as economic growth dramatically slows down this quarter, inflation stays high, and a bumpy approval for the Democrats $3.5 trillion spending plan.

Stocks eventually drifted lower on concerns the impact of delta variant could weigh on the consumer, Chinese stocks continue to battle a plethora of regulatory hurdles, and inflationary fears are intensifying.

FX/Treasury yields

Treasury yields went on a rollercoaster ride after a disappointing labor market report.  Initially, Treasury tumbled along with the dollar given the slowdown in hiring that cemented the view that the Fed is not any closer to making a tapering announcement.  After processing the entire wrath of economic data, the Treasury yield curve steepened after a massive move higher in average hourly earnings, raising the risk that inflationary pressures are growing.  The 10-year Treasury rose 3.9 basis points to 1.322%.

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