HSBC on the Labor Data

Here is HSBC's take on the labor report.

* A massive 0.4ppt rise in the unemployment rate to 6.1% from 5.7% (consensus  5.7%, HSCB 5.9%), now at the highest rate since September 2003. With unemployment already 0.5ppt above the Fed’s year-end forecast of 5.6%, the Fed is likely to re-focus on growth risks at the upcoming meeting on Sep 16   

* Nonfarm payrolls at -84k (consensus -75k, HSBC -90k) declined, along with      net revisions of -58k to the previous two months. Job losses mainly in          manufacturing (-61K), temp help (-37k) and retail trade (-20k). Construction    only declined 8k, the smallest fall in over a year                           

* The payroll diffusion index was a lonely piece of good news, rising to 48.9    from 41.4. Partly this reflects the manufacturing diffusion index (38.7 from 28.6) rebounding from dire levels, but the implied service-sector diffusion index also rose to 53.3 from 46.9, above breakeven for the first time in  three months

* Household employment declined by 342k. The 250k rise in the labor force was  not unusually large, as the participation rate stayed at 66.1%. This makes it difficult to attribute the rise in unemployment (6.06% from 5.68% unrounded) to unusual forces                                                 

* Some attributed the May surge in unemployment (up to 5.5% from 5.0% in          April) to an unusual rise in teenage unemployment, arguing that it may have   been seasonally distorted. But this month, the 16-19 yr old unemployment        rate actually fell to 18.9% from 20.3%. Unemployment is in fact rising for all age groups, with the core 25-34 yr old segement climbing to 6.2% from 5.6% in July.