Where's my Work Week?
If the broad contraction in Aug manufacturing ISM were not enough to raise doubts among those who think the US economy needs a rate hike, then today's release of Aug US jobs report will do the job. The 151K rise in NFP is a steady figure, but marks a clear decline under the 3-month and 6-month moving averages. The same goes for services and manufacturing sector jobs.
The broad slowdown in August labour market metrics may be a result of slower summer hiring, but are jobs truly strong enough for rates to be raised at a time when inflation remains not only below target but trending lower as shown in these charts.
And even if we kept the analysis inside the labour market, slower wage growth remains the highlight of Yellen's jobs dashboard. Average hourly earnings growth slowed to 2.4% y/y from 2.7% and 2.6% in Jul and Jun respectively, while average work week fell to a 2 ½ year low of 34.3 hours. This last point will be a crucial element in determining earnings, consumption and overall GDP.
Finally, the above chart suggests that full employment may already have been reached, as jobless claims and the unemployment rate exhibit tendencies of a bottoming pattern (red boxes) at a time when total and services payrolls are in topping pattern. Linking the historical bottoming patterns in unemployment and jobless claims with the Fed Funds rate (blue graph), it suggests that rates should be at the end of their holding pattern before the next rate cut.
Instead, the Fed has convinced markets there is a 30% chance of a rate hike this month, like it convinced many experts in January that it would raise rates four times this year. The challenge, however, is not to write a piece blog expressing your agreement or disagreement with the Fed/markets' view, but to turn your view into a tradable and profitable idea, which rises across the noise. We currently have 9 Premium trades; 2 in metals, 2 in indices and 5 in FX. The trades await a notable market/liquidity adjustment upon ECB president Draghi's return to action next Thursday.
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