• Nonfarm payrolls increased 315 thousand while the unemployment rate rose two-tenths to 3.7%. Expectations were for 298 thousand new jobs, so the actual increase was just above expectations but trailed July’s 526 thousand new jobs. The largest gains came in healthcare, professional and business services, and retail trade. The moderation in job gains will be applauded at the Fed but they will expect those gains to slow even more in coming months as the rate hikes take hold in the economy.


  • Wage growth slowed a bit from July which will also be good news at the Fed which is looking to avoid a wage-price spiral.  Average hourly earnings rose 0.3% for the month, missing the 0.4% expectation, and below the July gain of 0.5%. The year-over-year pace of wage gains was 5.2% vs. 5.3% expected and matching July’s 5.2% increase. That’s the third straight month at 5.2% so some plateauing in wage gains appears to be happening.


  • Another indicator the Fed will like is the three-tenth increase in the Labor Force Participation Rate. It rose to 62.4% from 62.1% as 783 thousand people entered the labor force. Expectations were for it to lift a tenth to 62.2%. The pre-pandemic participation level was 63.4%, so the damage from the pandemic looks to be a long-term issue for the labor market, but the three-tenths increase for August will cheer the Fed which is looking to see wage gains slow, and an expanding labor force will help do that.


  • As mentioned, the unemployment rate rose two-tenths to 3.7%, the highest level since 3.8% in February. The number of unemployed increased by 344 thousand to 6.0 million. So, of the 783 thousand new entrants to the labor market in August nearly half were still looking for a job during the mid-month survey. It wouldn’t surprise us to see the unemployment rate dip again in September as many of those new entrants eventually find employment.


  • This report could be characterized as a Goldilocks report, not too hot, not too cold. The Fed will find positives in the moderation of job gains and wage growth and will like the expanding labor force participation rate which had stalled out for several months. That should help ease labor market tightness and further moderate wage gains. All things the Fed wants to see.


  • All that said, it still leaves a 75bps hike firmly in play for September. The markets have currently priced in fed funds ending the year at 3.75% which aligns closely with recent Fed speak. The upcoming August CPI report will obviously be the key data point for the Fed’s rate decision later in the month.


    • In early trading, Treasury prices are higher on the short end of the curve (see below) as the Goldilocks read on the labor market implies a slightly less hawkish tone may be coming from the Fed, if the CPI report cooperates.


Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.44 3.52 3.54 3.61 3.76 4.22
0.50 3.43 3.49 3.48 3.50 3.62 4.11
1.00 3.42 3.46 3.45 3.45 3.53 3.98
2.00 3.45 3.39 3.37 3.41 NA
3.00 3.33 3.35 NA
4.00 3.30 NA
5.00 3.26 NA
10.00 NA

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Published: 09/02/22 Author: Thomas R. Fitzgerald