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August Payroll Report Could Dim September Fed Rate Hike Prospects

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There has been much focus over the past week on the August payroll growth slowdown and what it means for the timing of the next Fed hike. Rick Rieder sees a more interesting trend evident in the data.

Growth in U.S. nonfarm payrolls was a bit softer in August than the booming employment growth posted in the prior two months. There has been much focus over the past week on this August payroll growth slowdown and what it means for the timing of the next Federal Reserve (or Fed) interest rate hike. My take: The weaker-than-expected growth makes more sense alongside today’s corporate profits and economic fundamentals than the unsustainable hot pace of prior months, and the deceleration does make a December policy rate hike more probable than a September one.

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Market Realist- Slower but positive job growth

According to the Bureau of Labor Statistics, August was yet another month of steady growth (IWF). The total nonfarm payroll increased by 151,000 in August versus an average monthly gain of 204,000 over the prior 12 months. The number of unemployed people was unchanged at 7.8 million in August, and the unemployment rate remained at 4.9% for the third month in a row.

However, in comparison, June and July brought impressive job growth—adding over 200,000 jobs per month and averaging 232,000. August reported a 45.1% decline in jobs compared to July’s 275,000 jobs. August’s growth was slow but still trending positively, which could effectively rule out an interest rate increase from the Federal Reserve this month.

After Friday’s job report, major broad market indices registered daily losses. The S&P 500 Index (SPY)(IVV)(VOO) fell 2.4% to 2,127.81 on Friday, September 9, 2016. The Dow Jones Industrial Average (DIA) fell 2.1% to 18,085.45. The NASDAQ also fell 2.5% to 5,125.91 by the day’s end.

In the next parts of this series, we’ll discuss the changing composition of the labor market and sector growth in August and how the employment report will likely affect Fed policy.

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