Investing.com – A weaker-than-expected August jobs report stateside on Friday did little to change expectations about the timing of the Federal Reserve’s (Fed) return to monetary policy normalization as markets still expect the U.S. central bank to move at the end of the year.
All of the readings in the release disappointed market forecasts with particular attention paid to the creation of just 151,000 nonfarm payrolls (NFP) that came below expectations for 180,000 jobs and far below the 275,000 posts created in July.
The unemployment rate remained at 4.9% for a third-month running, missing expectations for a slight decline to 4.8%.
Furthermore, average hourly earnings rose by a meager 0.1%, below forecasts for a 0.2%, that suggests that wage increases will have little effect on moving inflation towards the Fed’s 2% target.
Markets reduce odds for a hike but still look for the move in December
However, the worst-than-expected data wasn’t enough for markets to take expectations for the next Fed rate hike in December off the table.
Fed fund futures did decrease the odds for September hike to 18%, from 24% before the release, according to Investing.com’s Fed Rate Monitor Tool.
The probability for a move in November also pulled back to 24.8%, compared to 30.3% earlier.
Still, the odds on an end of the year hike remained above the 50% threshold at 53.5% and were little changed compared to 53.6% before the report.
Did anything change with the report?
Bond guru Bill Gross from Janus Capital explained that Friday’s jobs didn’t change anything. In an interview with BloombergTV, he pointed to recent comments from Fed chair Janet Yellen and vice chairman Stanley Fischer and insisted that there was still a “very high probability” of a hike in September.
Somewhat to the contrary, Gross’ former colleague at PIMCO and current Allianz SE chief economic adviser Mohamed El-Erian warned that the report complicated a September hike.
“It’s not strong enough to assure a hike, but solid enough given concerns about collateral damage,” he said on Twitter.
Further complicating the implications of the August NFP was the fact that the data tends to undershoot market expectations as the summer holiday season is coupled with a lower response rate. Just as the data historically misses consensus, it often tends to later be revised higher.
Moreover, the Fed tends to overlook the volatility of each monthly report and focus instead on the underlying trend.
In speaking of the improvement in the U.S. labor market, Yellen had already mentioned in her last speech at Jackson hold that “smoothing through the monthly ups and downs, job gains averaged 190,000 per month over the past three months.”
With the reading for August, that three-month average has now risen even further to 239,000 thanks to prior revisions in the already strong NFP for June and July.
Stocks celebrate the numbers, dollar hit
Looking at financial assets most closely tied to the interest rate decisions, investors' reading of the data appeared to be that it had taken a September rate hike mostly off the table, but remained solid enough so as to not cause worries about the improving economy.
Indeed, U.S. stocks celebrated the news on Friday. At 9:50AM ET (13:50GMT), the Dow 30 jumped 119 points, or 0.65%, the S&P 500 rose 13 points, or 0.61%, while the tech-heavy Nasdaq Composite traded up 28 points, or 0.53%.
The dollar turned lower on the publication, with the U.S. dollar index trading down 0.15% to 95.52.
Gold also changed direction on the release, gaining 0.76% to $1,327.15 a troy ounce.