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August NFP, Better Or Worse Than The Headlines Suggest?

Includes: ACWI, SPY
by: The Balance of Trade

The establishment NFP figure on its face was not all that compelling.

There were some notable points of strength though: HH survey was very strong, and wage growth is robust.

About 20% of the jobs came from temporary government hiring, and the overall trend is toward lower NFP prints, especially after revisions.


Establishment vs. Household Survey

Some 571,000 people entered the labor force in August and nearly 590,000 found work - the biggest advance in 18 months. - Jeffrey Bartash, MarketWatch

One of the major ideas that Larry Kudlow (see video below) wanted to cover in the first two minutes of his time on CNBC was to emphasize that the HH survey was a blowout (about 590k), and that three-month annualized wage growth was over 4%.

White House advisor Larry Kudlow on August's weak jobs number from CNBC.

Wage growth speaks to me, even as the Establishment figure looks not so hot. Companies don't offer pay increases unless they have a hard time finding or retaining good workers. In that sense, the big HH figure jibes better with the wage increase metric.

Finally, August is a notoriously volatile month in terms of revisions. So whatever the figure that gets reported today, it's possible we'll see a big change.

Weighing the Negatives

There were some positives as it connected with the August NFP. I want to share the other side of the story though:

There's no question jobs growth is slowing. Kudlow, whose analysis I do enjoy, is in sales mode as we head into 2020 so that "his boss can get re-elected":

Fair point made, atom & humber. It is otherwise difficult to explain why Mr. Kudlow is so anxious to see rate cuts alongside the "blowout" (his words) HH figure and the impressive wage increases.

Salesmanship aside, however, the establishment survey is bearing witness to a steady decline in jobs. August continued that trend.


The August report indicated that industries closer to the Chinese trade dispute (retail, transportation) saw reductions in the headcount; services managed an increase.

Fully 25,000 of the jobs created were on account of the government hiring temporary workers ahead of the 2020 elections - about 20% of all the new jobs! Temporary government jobs is not what investors want to see.


The last negative I want to mention is the downward revision to June (15,000) and July (5,000). This is part of a larger pattern of downgrades.

Rate Implications

Certainly the wage growth has the Fed Chair's eye as he considers the upcoming rate cut:


Tariffs have the dual impact of slowing the economy while also promoting higher prices, a stagflation of sorts. If in fact Americans will be bearing some of the burden of the new import taxes, then Powell has to decide which way to lean. I think that so long as jobs figures don't take a massive turn, the Fed will tune more of its attention to the wage side of the coin rather than the unemployment levels itself, which frankly are very low.

The equity market response to the news events can be seen in the visual above with the "N" marks for news. S&P futures (SPY) did dip when in the immediate wake of the jobs figure, but then rebounded in short order back to the day's highs. The response to Chair Powell's planned speech was similar, though more modest. Overall, it's been a pretty quiet day for financial asset markets the world over (ACWI).

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.