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Will the August Jobs Report Soften the Fed’s Rate Hike Urgency?

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August jobs report

The August jobs report indicates an improvement in job growth. Non-farm payroll employment in the United States (SPY) (SPXL) added 151,000 jobs in August compared to 275,000 jobs in July. However, it was below the market expectations of 180,000 jobs.

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Key highlights of the August jobs report

  • Job growth occurred in service-providing industries while it declined in the mining, manufacturing, and construction sectors.
  • Healthcare (XLV) added 14,000 jobs, and social assistance added 22,000 jobs in August 2016.
  • Employment in professional and technical services added 20,000 jobs, and financial services (XLF) added 15,000 jobs in the same month.
  • However, employment in the manufacturing sector fell by 14,000 and in the mining sector, employment fell by 4,000 in August 2016.

Impact on the economy

After a weak performance in May 2016, job growth provided solid improvements in June and July, with employment figures increasing confidence in the economy (QQQ) (VOO).

The figures are minimizing concerns about a weakness in the labor market. However, the August jobs report didn’t meet the market’s expectations.

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Probability of a rate hike

During the Jackson Hole Symposium, the Federal Reserve chair, Janet Yellen, already hinted that if the August jobs report provided a strong performance, there was a chance for a rate hike during its September 2016 meeting. However, the August job report decreases the probability of a rate hike in September.

The rate hike is appropriate when the economy (IWM) (VFINX) shows a move toward a stronger position. Higher employment and the required inflation rate are some key factors that indicate an appropriate time for a rate hike.

In order to demonstrate improved economic conditions, there must be higher employment, higher wage growth, and higher consumer spending. So far, we’ve seen that consumer confidence improved in the economy in August 2016. During the Fed’s September meeting, we’ll see whether the August jobs report could soften the Fed’s rate hike urgency despite improved figures in June and July.

In the next part, let’s look at the ADP employment report for August 2016.

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