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Friday, September 5, 2014

US unemployment rate falls to 6.1%, but job creation hits eight-month low

Rolling business and financial news, as the US Non-Farm Payroll grows by less than expected in AugustLatest: just 142,000 new jobs created last monthWage growth disappointsParticipation rate down tooDollar fallsEarlier:Eurozone failed to grow last quarterEurozone bond yields hit new lowsIs the ECB really doing QE now? (yes, to a point....) 3.31pm BST Back to the US jobs data. Economics blogger James Pethokoukis says todays Non-Farm Payroll is not encouraging.Certainly [it is] not one that suggests a shift into a higher growth gear. The Two Percent-ish economy crawls on.The anemic economy is generating jobs at the top and bottom, not so much in the middle. Average is over as economist Tyler Cowen has put it And data yesterday from the Federal Reserve show that while income rose by 10% for the most affluent 10% of American families in 2010 through 2013, incomes were flat or falling for everybody else. 3.23pm BST Over in Greece, reports have begun to emerge that the International Monetary Fund will soon hold an emergency conference in Washington to deal exclusively with the countrys debt problem. We havent, yet, been able to get a response from the IMF. According to the source, the conference is being described as extremely important. At the high-level November meeting all the issues that concern Greece will be discussed but it is expected that lenders will focus on the debt issue, which as all know is not sustainable. 2.55pm BST 2.51pm BST The US non-farm payroll report is notoriously volatile - indeed, its reckoned to be accurate to only +/- 100,000 people.Chris Williamson of data firm Markit reckons we should focus more on the reasonably robust underlying hiring trend. But theres no escaping the lack of strong wage growth:Most importantly, however, the missing element of the recovery remains wages growth, the absence of which means policy makers will be in no hurry to cool the pace of economic growth via higher interest rates. Average employee earnings rose just 2.1% on a year ago, a rate that has held fairly steady in recent years despite the economic recovery. 2.44pm BST The breakdown of the jobs report shows that manufacturers didnt hire any extra workers, construction hiring rose by 20,000, while the sector service took on 122,000 additional staff. 2.21pm BST The top line in todays jobs report are that fewer Americans found work last month, more simply dropped out of the labour market altogether, and wages barely managed to match inflation.Reuters sums its up: "Job growth slowed down sharply in August and more Americans gave up the hunt for work." 2.15pm BST Some economists seem to be prepared to chuck this months disappointing jobs report in the trash.Rob Carnell of ING says the headline jobs number simply doesnt square with other surveys:Non-farm payrolls has disappointed badly, with a rise of only 142K, no rise in employment in the manufacturing sector, and a fall in retail employment. The headline figure is weak compared to the ADP survey, and both of the ISM surveys, and also many of the regional surveys. As such, we are hard pressed to give it much credence. More believably, the unemployment rate did fall by 0.1pp to 6.1% and hourly wages, which were revised upwards, rose 0.2%mom to stand at 2.1%YoY. Not helping matters, the household survey showed a rise in employment in August of only 16K.Such weakness plays into the hands of the Fed doves, of whom, Chair Janet Yellen is the most important, and gives her more leeway to stand firm against the hawks, many of whom are calling for a change in the Feds language on the likely timing and scale of policy normalisation.If this is the start of a sustained slowdown in payroll growth, I'm a fish."This is impossible to square with all the leading payroll indicators" -- Ian ShepherdsonSince average hourly earnings continued to rise, the report overcomes the notion of weak wage growth and maintains the Federal Reserve on course to taper its asset purchases at this months FOMC meeting, with the plan to end QE3 next month. 2.08pm BST US has created 4mln jobs since the start of 2013. Here's the sector breakdown. Prof.& leads 2.07pm BST #sarcasmOver the year, average wages have gone up by 2.1%. INFLATION! RED ALERT! 2.04pm BST The drop in Augusts non-farm payroll may just be a one-off event, reckons Capital Economics.Their chief US economist, Paul Ashworth, also suggests that wages arent rising fast enough to spook the Fed:The modest 142,000 increase in non-farm payrolls in August, which was well below the consensus forecast at 230,000 and the smallest gain this year, will inevitably spark speculation that the US recovery is somehow coming off the rails again. However, were not too concerned by what is probably just an isolated blip.Other indicators suggest that labour market conditions are still strengthening and the latest round of survey evidence indicates that economic activity is soaring. Accordingly, this doesnt change our view that the Fed will begin to raise rates in March next year, a little earlier than many others expect, particularly not when the unemployment rate edged down to 6.1% last month, from 6.2%. 1.56pm BST US employment growth slowed from 1.86% y/y to 1.82%. If productivity growth were less feeble, that would be fine. As it is, Meh! Tea time.. 1.54pm BST The US dollar has fallen against major currencies.That suggests analysts are concluding that todays disappointing Non-Farm Payroll makes it less likely that the Federal Reserve will raise interest rates soon. 1.48pm BST Hat-tip to Marketwatch for this graph showing how job creation slowed last month:The US added 142,000 jobs in August. The US gained 215,000 jobs/month on avg. so far in 2014. 1.46pm BST Another downbeat stat in the US jobs report - the labor force participation rate fell last month, to 62.8%, from 62.9% in July.That means that more people dropped out of the workforce last month, and explains why the unemployment rate fell to 6.1%. 1.44pm BST Seth Harris, a former deputy US labor Secretary, is disappointed that wages didnt rise more last month.He tweets that wages are rising too slowly, and not beating inflation:Avg hourly #earnings rose 6 cents in August to $24.53. Despite #jobs growth, flat #wages indicate way too many workers for too few jobs.The growth in average hourly #earnings over the year is only 2.1%, about the same as #inflation rate. So, workers' #wages remains stagnant.With revisions to prior months' #jobs reports, the economy added only 113K jobs. That's surprisingly tepid for projected 3+% #GDP growth. 1.41pm BST The non-farm payroll report shows that average earnings rose by 0.2% in August, up from 0.1% in July. On an annual basis, pay packets were 2.1% larger than in August 2013. 1.39pm BST The instant reaction is that its a somewhat disappointing jobs report:Payrolls up a somewhat disappointing +142k. Unemployment dips a tad to 6.1%. June revised down -31k July revised up +3k. 1.37pm BST Previous US jobs reports have also been revised.Julys non-farm payroll has been revised up by 3,000, to 212k. But Junes figure has been cut by 31,000, from 298,000 to 267,000. 1.32pm BST Breaking: The non-farm payroll has been released, and the headline news is that much fewer jobs were created last month than expected.The non-farm payroll expanded by just 142,000 last month, compared to expectations of around 230,000. Thats the lowest number of new jobs created in eight months. 1.22pm BST Reuters survey of economists also found they expect around 225,000 new jobs were created in the US in August: Economists predict nonfarm payrolls increased 225,000 last month, according to Reuters survey. 1.16pm BST Wages, workforce participation rate, part timers and more to watch in the U.S. jobs report 1.05pm BST The Non-Farm Payroll always generates lots of forecasts on social media, with people trying to predict how many new jobs were created last month (excluding the volatile agricultural sector).Bloomberg has been tracking the various guesses informed suggestions, and reports that the consensus is just over 229,000.Social Media #NFP Consensus has been relatively steady this AM: { BTWTNF Index GIP} 12.58pm BST Ilya Spivak, currency strategist at DailyFX, reckons todays non-farm payroll could show the US labour market is stronger than economists realise:US economic news-flow has dramatically outperformed relative to consensus forecasts over recent weeks, suggesting analysts are underestimating the vigor of the worlds largest economy and opening the door for an upside surprise. 12.52pm BST OK, just over 35 minutes until the US jobs data for August hits the wires. Its guaranteed to trigger at least a brief period of excitement in the financial markets, but more importantly it should give clues as to whether the American labour market improving... 12.40pm BST The dash into eurozone government bonds just drove the yield on 10-year Irish and Italian debt down to record lows, according to Tradeweb data: 12.32pm BST Economist Shaun Richards has also blogged on the quantitative-easing aspects of the ECBs plan to buy asset-backed securities and covered bonds (which have a revenue flow from underlying assets such as mortgages):Yes these two operations will be a type of QE in the way that purchases of Mortgage Backed Securities (MBS) by the US Federal Reserve have been. Along the way there was a hint from Mario Draghi that the ECB would take its balance sheet back to its peak size. As this would involve around a trillion Euros of expansion he may have to introduce other measures too.Let me remind you of a phrase the Bank of England invented when it was involved in such a policy, phantom securities, where it did not get what it thought it was getting in a repetition of the AAA-rated scandal which got us into this mess. A version of that will replace the clear and transparent rhetoric we are currently seeing, but no-one seems much bothered by that. Indeed ECB policy seems to be exactly the reverse as it asks for a market to be created. Further down the line Euro area taxpayers have legitimate concerns that surprise losses may mount as AAA turns one more time to actually be ZZZ.Negative interest-rates present a trap for the Euro area and the ECB via @mmlatest #Draghi 12.01pm BST My colleague Katie Allen has been pondering the question of whether the European Central Banks ABS scheme is simply quantitative easing by any other name.She says:When Draghi was asked the question at the press conference yesterday he appeared to dodge it (see quote at 9.59am), leaving economists in the market to try and figure it out for themselves.Its worth bearing in mind a few things here.If it walks like QE, and quacks like QE, then it is a duck. 11.14am BST The pound is heading for its worst week in a year, as Scottish independence jitters hit sterling.Its down again today, dropping 0.2 of a cent to $1.6313. That means its shed 1.7% this week, a big shift in FX terms.#scotcheggsit RT @moved_average: #UK | #GBPUSD 1M implied vol...up quite a wee bit more today... #Indyref 10.55am BST The eurozones failure to grow between April and June is disappointing and worrying, says Howard Archer of IHS Global Insight:Already lacklustre Eurozone economic activity seemingly suffered in the second quarter as heightened global geopolitical tensions (particularly the Ukraine/Russia crisis) weighed down on investment. 10.30am BST We have confirmation that the eurozone failed to grow last quarter, and companies failure to invest was a key factor. Eurostat has reported that GDP was flat at 0.0% in April-June, in line with the initial estimate. Malta (+1.3%), Latvia (+1.0%), Lithuania, Hungary and the United Kingdom (all +0.8%) recorded the highest growth compared with the previous quarter. Romania (-1.0%), Denmark and Cyprus (both -0.3%), Germany and Italy (both -0.2%). Euro area GDP stable in Q2 2014, +0.7% compared with Q2 2013 #Eurostat 10.05am BST Bad news for the Bank of England as its inflation survey shows that people think it is rising not falling. Oops! #BoE 10.04am BST Back in the UK, nearly half the population expect the Bank of England to raise interest rates within the next year.The latest survey of inflation expectations show the 49% of the public see a rate rise in the next 12 months, up from 42% in May. Thats a three year high. 9.59am BST Theres a lot of debate this morning as to whether the ECBs asset-backed securities programme should really be classed as a form of quantitative easing. Arguably it should.The initial reaction in many quarters was that its not QE; as the ECB is buying securities based on private loans, not sovereign debt issued by governments.On the first thing, the definition of QE is not really related to its size, but rather to its modalities. So QE is an outright purchase of assets. To give an example: rather than accepting these assets as collateral for lending, the ECB would outright purchase these assets. Thats QE. It would inject money into the system. Now, QE can be private sector asset-based, or also sovereign-sector, public sector asset-based, or both. The components of todays measures are predominantly oriented to credit easing. However, its quite clear that we would buy outright ABS, the senior tranches, and the mezzanine tranches only if there is a guarantee. In other words, very much like what the Fed did a few years ago. So there is also this component.Befuddling this morning: all the notes saying Draghi didn't do QE. (He did) (QE also included MBS in the US) Also, not like they were ever gonna do govt bond purchases due to a) micro yields and b) politics!! "The ECB would outright purchase these assets. Thats QE" (Still not sure why this isn't getting through.) QE at #ECB seen at just a 30% probability by yr-end increasing to 45% in 2015 according to Nomura who correctly guessed yest. rate cuts 9.05am BST Investors are piling into eurozone government bonds this morning.The rally has driven the yield, or interest rates, on Irish two-year bonds was into negative territory, according to Bloomberg data. That means investors effectively paying a small premium to hold short-term Irish debt.*IRELAND'S TWO-YEAR NOTE YIELD DROPS BELOW ZERO FOR FIRST TIMEThe new normal: 2yr govt bond yields in the #äEurozone turned negative after #ECB move. 8.53am BST The Euro is holding at the new lower level after yesterday's drop and is now at 1.293 versus the US Dollar #currencywars 8.43am BST The asset-backed security programme announced by the ECB yesterday could be the prelude to a large-scale purchase of government bonds, suspects Jeremy Cook of World First.He explains:From the October meeting, the European Central Bank will begin purchasing assets from the private sector in a bid to loosen credit markets within the Eurozone.This additional measure is the beginning step to a larger plan for the full-scale purchase of European government debt, we believe. There are significant challenges to getting to this destination of course; drastic legal changes are required and we know that the German Central Bank was unhappy with the vote on ABS. There is little chance of getting the Germans onside for full-scale quantitative easing without a significant deterioration in the continents economic outlook.World First Morning Update September 5th - Euro falls hard as Draghi brings in ABS purchases and rate cuts - 8.32am BST A quiet start in the financial markets, with the German DAX and UK FTSE 100 both down around 0.15% in early trading, and the French CAC flat.BP shares are under pressure in London, down another 0.5%. Yesterday they tumbled almost 6%, after a US court ruled the firm was reckless and negligent over Deepwater Horizon disaster. 8.22am BST Another sign that Germanys economy may be recovering after suffering a contraction in the second quarter of this year.Industrial production in the eurozones traditional powerhouse surged by 1.9% month-on-month in July, smashing forecasts for a 0.3% rise. #Germany | JULY INDUSTRIAL PRODUCTION M/M: 1.9% V 0.4%E; Y/Y: 2.5% V 0.6%E rebound in July for #German industry. But summer holiday this year was late, so risk of setback in August 8.11am BST The ECBs stimulus measures are likely to weaken the euro further, reckons Kit Juckes of Société Générale.He predicts: If the US recovery continues enough to allow the Fed to hike rates in line with its famous dots, we will see Eur/USD well below 1.20 in a couple of years.I am watching wages to see if in a world where the annual pay increase is dead, pay growth is driven by whether we pay more for new entrants. This years crop of American graduate trainees and new teachers - Im looking at you. 8.04am BST Something else to watch out for today; Moodys will be releasing a new report on Portugals credit rating:Moody's due to update #Portugal sovereign rating, currently rated "Ba1";outlook stable....#RatingAgencyFriday 8.00am BST Economist Nouriel Roubini reckons that the ECBs asset-backed securities programme (acquiring pools of loans from the banks) is effectively quantitative easing.@Nouriel tells @BloombergTV that "effectively QE has already started" in Europe via ECB asset-backed security purchases 7.48am BST Good morning, and welcome to our rolling coverage of the financial market, the world economy, the eurozone and business.reinforce the narrative of an improving US economy, and bring forward the prospect of a Fed rate hike in 2015.A number higher than 2% could well prompt additional speculation about an earlier rise in rates. Continue reading...