Job Gains Fall Short

This week, the key labor market data revealed mixed results, and it was viewed as roughly neutral overall. The other major economic news contained no surprises, and mortgage rates ended the week with little change.

However, there were some offsetting factors, such as upward revisions which added 134,000 jobs to the results for prior months. In addition, education jobs sharply underperformed expectations, but this likely was due to distortions in the seasonal adjustment caused by the pandemic. The data is adjusted to reflect historical seasonal trends such as the start of the school year, and many of the usual hiring and firing patterns have changed during the pandemic. 

The unemployment rate declined from 5.4% to 5.2%, matching expectations, and the lowest level since prior to the pandemic. Average hourly earnings, an indicator of wage growth, rose 0.6% from July, well above the consensus of 0.3%. They were 4.3% higher than a year ago, up from 4.1% last month. To summarize, job gains fell short partly due to seasonal issues related to the pandemic, while wage gains were very strong, and the report had little net effect on mortgage rates.

A couple of other significant economic reports released this week from the Institute of Supply Management (ISM) revealed the expected strong results. The national services index fell to 61.7, down from a record high last month, while the national manufacturing index came in at 59.9. Levels above just 50 indicate that the sectors are expanding, and readings above 60 are rare. Of note, a large number of companies reported difficulties in hiring enough workers to keep up with growing demand.

Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, the next European Central Bank meeting will take place on Thursday. It will be a very light week for economic data. The JOLTS report, which measures job openings and labor turnover rates, will come out on Tuesday and the PPI inflation data on Friday.