The employment report released yesterday leaned considerably on the positive side. That’s my opinion as well as the opinion of many other market analysts. markets were waiting for that report, considering that ISM manufacturing PMI indicator came in pretty weak at the beginning of the week. This indicator fell below 50 points which is the break-even level, which means that it fell in contraction, just like in other major/developed countries of the world. This increased fears of a possible recession coming up in the US, or at least for this sector like it has been in Germany. Although, the ADP non-farm employment came in stronger on Thursday at 195k, so traders were left in doubt. They had placed their hopes for some clarification of where the US economy is right now on yesterday’s employment report.

The employment report looked pretty strong and it is strong in my opinion as mentioned above, but there were a few caveats. The average hourly earnings increased by 0.4% in August, more than the 0.3% expected and YoY they came in at 3.2% against 3.0% expected. This is the strongest component of this employment report, showing that the pace of growth is increasing in earnings of the average US worker. Wages have been sort of stagnant for a long time despite the unemployment rate falling to a multi decade-low of 3.7%, but now they are increasing. That shows that the US companies are finding it harder to find employees and are paying them more.

Another sign of this, is the fact that the participation rate increased by two points from 63.0% to 63.2%. The unemployment rate remained unchanged, but had the participation rate remained the same, the unemployment rate would have declined by two points to 3.5%.

The non-farm employment change did miss expectations of  160k growth, but they still grew pretty solidly by around $130k which would compensate for the population growth. Although, the 3-month average has declined considerably from 223k last year to 158k now. That’s one thing to put a dent on this employment report.

Another thing to weigh on this report was the 25k temporary jobs that were added by the government for the 2020 US census. Another issue was the private payrolls which increased by 96k which is a three-month low. The total non-farm employment change have also been revised lower for the past 4 months. Although the thing which weighed most on this report was the really low jobs increase in the manufacturing sector, by only 3k while retailers cut jobs for the seven straight month. This increases fears that manufacturing sector is in difficulty in the US and retails show a weakness in consumer spending, despite growing wages. That’s a sign that the US consumer might be holding on in fear of a further economic slowdown.

Now, traders think that the FED might actually cut rates again this month for the second straight month. So, while the headline figures are positive, the details of the employment report highlight weakness in some sectors. In normal times, this would have gone by unnoticed, but now that manufacturing is suffering in a global scale, the trade war is in full flow, the global economy is heading to stagnation and major central banks are in the middle of monetary policy easing by the means of interest rates cuts, things get more complicated. It’s not given that the EFD will cut rates again in the next meeting, but the odds have gone up after the soft ISM non-manufacturing report and the slow jobs increase in manufacturing adds some more points to the odds of the FED cutting rates, hence the decline in the  USD.