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Market Wire
Non-Farm Payrolls Miss Expectations, Cueing Up Fed Cut

Karl Schamotta September 6, 2019

The United States created 130,000 jobs last month, missing forecasts for a 150,000-position gain – while reinforcing expectations for a second consecutive rate cut when the Federal Reserve meets later this month.

The headline unemployment rate held at 3.7%, meeting consensus projections, while a broader measure that includes underemployed and discouraged workers rose to 7.2% from 7%.

Wage gains beat forecasts with a 3.2% jump from a year earlier, up 0.4% from the prior month. Hours worked also strengthened

Darkening the picture, hiring for the 2020 census is believed to have added roughly 30,000 positions in August, bumping growth in the headline number well above the 96,000 increase in private-sector roles. On a three-month average basis, non-government hiring is running at 129,000 jobs a month.

Revisions also subtracted 20,000 positions a month from June and July, meaning that the economy has generated an average 156,000 jobs over the last three months.

These numbers add to evidence of a slowdown observed in recent survey data and contradict the Federal Reserve’s belief that it is engaged in a “mid-cycle adjustment” – not the new easing cycle that is (arguably) priced into markets.

Chairman Jerome Powell is expected to provide an economic and monetary policy outlook when he speaks in Zurich at 12:30 Eastern today, and his words will be carefully parsed by those looking for insight into the next rate decision on September 18. The central bank enters purdah tomorrow, with no speeches scheduled before the meeting.

Here in Canada, jobs creation smashed forecasts with an 81,000-position print, while the unemployment rate held at 5.7%. Markets had expected 15,000 new roles for August.

Wage growth slowed from July’s clearly unsustainable 4.5% to 3.8% – still remarkably high, and enough to justify continued strength in the all-important consumer spending segment of the Canadian economy.

The Canadian dollar gapped higher in response, rising almost half a cent against the greenback in the seconds after the release – but is now giving back those gains as traders look at the details more closely. With the bulk of the job creation coming from 57,200 part-time roles and the service sector creating virtually all new roles over the last year, this was another in a long string of superficially impressive Canadian numbers.

Also, not to look the gift moose in the teeth further, but the so-called FIRE sector (finance, insurance and real estate) generated 22,000 positions in the month, underlining the country’s incredibly high dependence on a hot housing market over the last three months. With the two-week Canadian summer now done and the construction season drawing to an end, these numbers seem likely to weaken somewhat into the autumn.

Odds on an October rate cut from the Bank of Canada have fallen this week – and a trade deal between the US and China could yet reverse things – but an ‘anticipatory’ move designed to boost business investment and sustain the economy’s expansion remains a strong possibility.

Karl Schamotta
Chief Market Strategist

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