Strong August jobs report sends yields higher

NEW YORK, Sept 4 (Reuters) –  U.S. job growth accelerated sharply in August while the unemployment rate held steady at 4.1%, pointing to a stable labor market and keeping an interest rate hike from the Federal Reserve this month on the table.

Nonfarm payrolls surged by 162,000 jobs last month after an upwardly revised rise of 21,000 in July, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls would increase by 56,000 after a previously reported drop of 23,000 in July.

Labor market momentum had decelerated after surging in the spring, partly blamed on the oil price shock and supply chain strains from the U.S.-led war with Iran. Market expectations that the Fed will raise rates by a quarter-point in two weeks rose to 59% after the report from 52% earlier. 

REACTION:

STOCKS: Major U.S. indexes were mixed ahead of the opening bell after the report. S&P 500 futures were down 0.2%  and futures on the Nasdaq composite were up 0.2%.

BONDS: U.S. Treasury yields rose on the news. The 2-year Treasury yield, most sensitive to the market’s expectations of Fed rate action, rose 7.6 basis points to 4.41%. The 10-year Treasury yield rose 3.2 basis points to 4.792%. The 30-year yield rose 1 basis point to 5.252%. 

FOREX: The dollar index rose 0.3% to 99.3. 

COMMODITIES: The gold price fell 1.7% to $4,392, reversing some recent gains.

COMMENTS:

JOSH STEVENS, CHIEF INVESTMENT OFFICER, CRESALTA INVESTMENT MANAGEMENT, GREENWOOD VILLAGE, COLORADO: 

“This is obviously a very volatile report, but it does mean that at this point the Fed’s focus is going to be on inflation.

“The stakes are going to stay high for the inflation data next week. The argument about the labor market remaining weak has some validity, but if employment shows strength in next few months, we’d see a pickup in wages, and that would get the Fed’s attention.

“This shows a positive direction for the overall economy. Things got a little bit disjointed with the Iran war but it does seem like some of the momentum we saw in the beginning of the year is back.”

CHRISTOPHER HODGE, CHIEF U.S. ECONOMIST, NATIXIS, NEW YORK:

“Even after July’s report, most policymakers seemed sanguine about the labor market so inflation will clearly still be the primary driver of near-term policy. A softer print today could have given some wiggle room on what was considered to the an acceptable core CPI print, but clearly we didn’t get that. Instead, the onus will continue to be on the doves to get a disinflationary print that justifies another hold – we are putting that bogey at about 20bps. Absent that, the Fed will likely hike in September.” 

TIM URBANOWICZ, CHIEF INVESTMENT STRATEGIST, INNOVATOR ETFS, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:

“Today’s report was strong, and we could see markets take a react first, ask questions later approach. but once the dust settles, we think investors will realize the broader trend of labor market rebalancing is still intact.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:

“This is a strong report considering market consensus, and a strong rebound from the previous month. Hourly wages, not a problem. That’s actually positive here.

“It shows that the labor market is solid. There’s no evidence here of rising wage inflation, even though they’re a little bit higher than expected on a yearly basis, but 3.1% is more or less what we’ve had for a sustained period of time. So I don’t think this will be a problem for the Fed, and certainly it shows that the jobs market is in solid condition.

“Remember next week we have the CPI and PPI and I expect them to more or less be a repeat of what we saw in July and August. And if that’s the case, I think that the Fed stays on hold. (Fed Chair) Kevin Warsh certainly talked a tough talk on inflation, but he’s in no real hurry to raise rates, and I think he’s going to hold out.”

BRIAN JACOBSEN, CHIEF ECONOMIC STRATEGIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

“The drop in employment in July was an illusion. That’s the problem with trying to trade the headlines. Data get revised. The drop in local education was a seasonal adjustment illusion.

“The index for aggregate hours and aggregate earnings both advanced nicely.

“The labor force participation rate improved, but it’s hard to believe the labor force increased by 683,000 in August. The BLS has some soul searching to do when it comes to seasonal adjustments.

“If there’s a cloud behind the silver lining of the report, it’s that the number of people who have been unemployed for 27 weeks and over increased by 159,000. A “no-hire, no-fire” situation is OK for those with jobs, but tough for those without.”

(Reporting by Lucia Mutikani, Saeed Azhar, Stephen Culp, Niket Nishant; editing by Colin Barr)