US: NFP trending lower – TD Securities

TD Securities analysts note that the US Nonfarm payrolls surprised expectations to the downside, coming in at 130k (TD: 145k; market: 160k).

Key Quotes

“Notably, the headline figure included a temporary 25k boost from hires by the federal government for the decennial census. That means the actual headline number was much lower at 105k for August. The 3-month and 6-month averages, excluding census hires, is hovering at around 150k — still more than sufficient to absorb new entrants into the labor force, but well off the 240k pace in January.”

“The unemployment rate remained unchanged at 3.7% in August, as expected, despite an uptick in the labor participation rate to 63.2% — its highest level since February. The underemployment rate rose two tenths to 7.2% following its drop to a new cycle low in July.”

“Separately, average hourly earnings exceeded expectations, jumping 0.4% m/m in August. Despite the strong monthly gain, the annual pace of wage growth slowed a tenth to 3.2% y/y, following an upwardly-revised 3.3% in July. Note that the annual pace has remained stuck in the 3.0-3.4% range since August 2018, indicating no evidence of price pressures brewing in the labor market. Notably, average weekly hours recovered to 34.4 in August from 34.3 before.”

“Fed is likely to stay focused on developments abroad and to external factors that may continue to affect the outlook. Although the monthly jump in wage gains was eye-catching, an annual pace at 3.2% y/y suggests wage growth remains a non-issue in terms of price pressures. We continue to believe the Fed will deliver 25bp cuts in September and October as global growth fears remain present and trade wars are likely to remain in the limelight.”