Will the FED Keep Rates Low As New Jobs Cool Off?
US employment is cooling off which might turn the FED dovish again
Central banks and governments around the globe pressed the panic button when the coronavirus broke out and they have been carrying out the largest spending ever in record. Trillions of Dollars and Euros have been spent during this time, but that’s been going on for quite some time now, with national debt jumping higher in all countries, while the populations seem more used to the coronavirus now, so life has normalized, despite the new variants.
Central banks are under pressure to slow down the stimulus and start increasing interest rates. The Reserve Bank of New Zealand did so, hiking rates by 0.25% in the last meeting and comments from hawkish FED members have been increasing, so the odds of the FED stopping the QE programme soon and hiking rates as well have been going up, especially with inflation above 5% and new employment near 1 million a month.
But, recent employment reports have been missing expectations by a lot, showing a cool off. Jerome Powell already wasn’t too keen on hiking rates, so these recent ones should put him off even more. That’s why the USD declined on Friday after the NFP jobs report which is displayed below, although the decline stalled in a while, so for now we’re right in the middle. There’s more data coming before the next FOMC meeting. But, if the data does cool off, then the doves will be more vocal while the hawks will quiet down, which will weigh on the USD.
US ADP Employment Report
- ADP Employment august 374K against 640k expeted
- Prior month revised to plus 326K from +330K. Recall from last month, the BLS estimate for job gains came in at 943K. Since the pandemic, the ADP and BLS employment data has diverged
- Small businesses saw a gain of 86K
- Midsize businesses saw a gain of 149K
- Large businesses saw a gain of 138K
- Goods producing sector increase by 45K
- Service providing sector plus 329K
- Natural resources plus 9K
- Construction +30 K
- Manufacturing plus 6K
Service producing industries saw job gains of:
- Trade transportation and utilities, +18 K
- Information, unchanged
- Financial activity +13 K
- Professional business +19 K
- Education and health care, +59K
- Leisure and hospitality, +201K
- Other services, +19 K
Comments from ADP and Moody’s analytics.
Nela Richardson, chief economist for ADP said:
- “Our data, which represents all workers on a company’s payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year. Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector. Job gains across company sizes grew in lockstep, with small businesses trailing a bit more than usual.”
Mark Zandi, chief economist of Moody’s Analytics, said,
- “The Delta variant of COVID-19 appears to have dented the job market recovery. Job growth remains strong, but well off the pace of recent months. Job growth remains inextricably tied to the path of the pandemic.”
August 2021 US non-farm payrolls data
- August non-farm payrolls +235K vs +750K expected
- Prior was 943K (revised to 1053K)
- Two month net revision +134K
- Unemployment rate 5.2% vs 5.2% expected
- Prior unemployment rate 5.4%
- Participation rate 61.7% vs 61.6% expected (was 62.8% pre-pandemic)
- Prior participation rate 61.7%
- Underemployment rate 8.8% vs 9.5% expected (9.2% prior)
- Average hourly earnings +0.6% m/m vs +0.3% expected
- Average hourly earnings +4.3% y/y vs +4.0% expected
- Average weekly hours 34.7 vs 34.8 expected
- Change in private payrolls +243K vs +665K expected
- Change in manufacturing payrolls K vs +25K expected
- Long-term unemployed at 3.2m vs 3.4m prior
- The employment-population ratio, at 58.5% vs 58.5% prior (61% pre-pandemic)
- Full report
The household survey was decent, with unemployment continuing to fall, but the establishment survey was poor, with ‘leisure and hospitality’ adding no jobs, in a sign that pandemic-related re-hiring stalled during the month. In particular, there were 42K job losses in food services and drinking places.
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