Investor attention turned to the probability of a Fed rate hike later this month. A number of significant employment related data points were released today which could impact the Fed's decision. Job growth was slower than expected with only 173,000 new jobs added during the month, but job gains for June and July were revised higher. The unemployment rate fell to 5.1 percent as more workers dropped out of the labor force. Wage growth picked up, rising at a 2.2 percent annualized rate.
Unsurprisingly, the report was viewed as mixed. Job growth wasn't strong enough to guarantee a rate hike, but also not low enough that an increase won't occur. Prior to the report, Richmond Fed President Jeffrey Lacker said he favored raising rates. Regarding the soon to be released report, he said, "While there is always a chance that this morning's report is unexpectedly weak, it's quite unlikely that a one-month blip would materially alter the labor market picture or, for that matter, the monetary policy outlook. After all, more than 12 million jobs have been added since the trough in payroll employment in early 2010."
Lacker has said rate hikes are possible before though, so the net effect of all these reports and speeches is still uncertain. All that can be said is the Fed should hike interest rates two weeks from now. It has enough solid data, the market will be prepared and policy makers around the globe are ready.
As for other economic data, it continues to improve. Strong auto sales (17.8 million versus 17.3 million forecast) in August caused the Atlanta Fed's GDP Now estimate to tick up to 1.5 percent growth for the third quarter. The PMI was solid at 53. Productivity in the second quarter was 3.3 percent, which sent unit labor costs down 1.4 percent. An increase in unit labor costs would be better news for wages and rate hikes, but the strong productivity reflects good economic growth.
The S&P 500 Index is down about 3.3 percent for the week in midday Friday trading. The intraday and closing low of 1867 on Monday August 25 provides support and the current pullback is a test for both the bulls and bears. The best performing sectors this past week were consumer staples and consumer cyclicals; financials, healthcare and utilities were the worst performers. Energy did relatively well thanks to oil prices holding steady in the $40 range.
The European Central Bank expanded quantitative easing this week, sending the U.S. dollar higher versus the euro. It also sent stocks higher on Thursday, but by Friday the European indexes had given up most of their gains and were back to their Wednesday prices.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.