All week it seemed as though markets were waiting for something to happen. As if a big calamity or massive earnings were going to unfold… Nope, just jobs…
The week was marked by low volume, which is very typical for August. Volume did not pick up at the end of the week even with the jobs report delivering another round of healthy increases to employment and wage growth. This data built on the already strong data released last month. Yet it was not enough to bring traders to the floor.
US Data
ISM Manufacturing fell .6 to 52.6, however over 50 still represents expansion. Core PCE, which is the Federal Reserve Board of Governors (FRB) preferred measure of inflation increased at a rate of 1.6% year over year through June. With the FRB’s mandate at 2% inflation reads as though it is contained. Personal spending increased .4% in June, which is a strong reading for the consumer. This is not surprising since the consumer did the heavy lifting for 2nd quarter GDP[1].
Jobs Data
Job data for July showed much to be optimistic about. Average hourly earnings improved .3%. Stronger average earnings lead to more discretionary income, which is good for spending and the economy. The participation rate ticked up .1% to 62.8%. Increases in participation can often reflect an increased optimism towards the job market. The biggie was an increase in nonfarm payrolls by 255,000. This was great news after they were expected to increase 180,000. Not only did the increases exceed expectations, the previous month’s numbers were revised up to 292,000[2].
International Data
The UK continues to grapple with Brexit as both manufacturing and services data released this week came in under 50, which reflects economic contraction. The Brexit will likely leave a lingering soft economic environment and possibly a recession for the UK during the second half of 2016.
Conclusion
Be mindful, the stronger jobs data leads many to believe that the FRB is more inclined to raise rates later this year. Their decision will be based on more than just jobs, but as a primary objective of the FRB, this data does nothing but improve their likelihood of taking action.
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[1] www.investing.com – economic calendar
[2] www.investing.com – economic calendar