August nonfarm payrolls highlight week of mixed data
As the market continued to react to Federal Reserve Chair Powell’s remarks at the Jackson Hole Economic Symposium, August nonfarm payrolls grabbed headlines after falling short of expectations. Elsewhere, data came in mixed as the delta variant continues to weigh on increased demand.
Labor market update
After Federal Reserve Chair Powell’s remarks last week about needing to see continued improvement in the labor market prior to changing any policy, August numbers arrived in disappointing fashion. The economy added only 235,000 jobs in August, coming in well below expectations of 720,000. The 235,000 jobs added marks the lowest number since January’s 233,000, and broke a four-month streak of improving nonfarm payrolls data. The ADP employment report, which accounts for jobs created in the private sector, also came in below expectations in August. The month saw an increase of 374,000 private sector jobs, below the forecast of 600,000. Most of the new jobs came from the leisure and hospitality sectors. However, it wasn’t all doom and gloom in the labor market, as weekly initial jobless claims came in at 340,000, the lowest total since March 2020. The unemployment rate also fell in line with expectations to 5.2% in August, marking the lowest rate since March of last year. Rates rose slightly on the nonfarm payrolls and unemployment news on Friday after remaining range bound (between 1.27% and 1.31%) for most of the week. Long-term rates have risen from the relative lows we saw during the summer months of July and August, but many Corporates are still looking at pre-issuance hedging as a good way to mitigate risk on future fixed-rate debt issuance, especially given where rates are compared to the year-to-date highs we saw in March and April.
(Related insight: Read "Managing interest rate risk on future debt issuances")
Data came in mixed elsewhere last week as the delta variant still weighs on increased demand. The consumer confidence index dropped to 113.8 in August, its lowest point in six months. The second consecutive month of decreasing confidence may indicate the economic recovery is starting to slow as autumn approaches. On the other hand, the ISM Manufacturing Index, based on a survey of purchasing managers at over 300 manufacturing firms, jumped to 59.9% in August, outperforming expectations of a 58.6% reading. This marked the 15th straight month of growth in the economy, as any reading above 50% on the Index signifies growth. Equity indices were mixed last week, as the Dow Jones fell (accentuated by a drop on Friday after the weak nonfarm payrolls report), while the S&P and Nasdaq hit record highs.
The dollar weakened a bit last week after Chair Powell made remarks indicating that rates would not be raised in the near future. Although the U.S. dollar weakened against a number of currencies, EUR and GBP made the most significant gains, ending the week up .70% and .73% compared to the USD, respectively.
(Related insight: Read "Six key steps to implementing an operational FX program")
Crude oil prices increased late in the week as the east coast of the United States continues to recover from the destruction caused by Hurricane Ida. Approximately 1.7 million barrels per day of oil production is still being affected as damage to offshore platforms in the Gulf of Mexico is preventing crews from returning to work. U.S. crude inventories fell by 7.17 million barrels for the week ending August 27, compared to expectations of a 3.09 million barrel decrease. Aluminum prices also continued to climb, reaching $2,696/ton to close the week.
The week ahead
After a deluge of economic data last week, the holiday-shortened week looks much quieter. Investors will certainly have their eyes on this week’s initial jobless claims figure after the poor nonfarm payrolls data for August. The Bureau of Labor Statistics will release August’s producer price index later in the week.
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