- Headline jobs growth comes in at +201K, and the unemployment rate held at 3.9%.
- US wage growth increased to+2.9% y/y, ending the recent streak of negative real wage growth.
- The US Dollar jumped higher immediately following the data, with the DXY Index rising from as low as 94.95 to as high as 95.35, at the time this report was written.
Another month for 2018 is in the rearview mirror, and another jobs report has revealed that the US labor market continues to chug along at a steady pace. While the August US Nonfarm Payrolls report wasn’t a blowout by any means – the headline jobs figure came in at +201K versus the consensus of +190K – it was strong enough all-around to boost investors’ beliefs about when the Federal Reserve will hike rates over the coming months.
After all, according to the Atlanta Fed’s Jobs Calculator, the US economy only needs to add on average +106K jobs per month over the next year in order to keep the unemployment rate at 4.0% or lower. With the jobs growth coming in above the threshold required to keep the unemployment rate on hold or lower, the U3 reading held steady at 3.9%, even as the labor force participation rate dipped from 62.9% in July to 62.7% in August.
Perhaps most assuring for market participants was the fact that wage growth jumped back up to +2.7% y/y, the highest pace since May 2009. Evidence of wage growth in a tight labor market will only serve to incentivize Fed policymakers even more to tighten rates over the coming months (even if those expectations were significantly elevated already).
Following the release of the data today, Fed funds futures were pricing in a 95% chance of a 25-bps rate hike later this month and a 70% chance of a fourth and final hike in 2018 in December. This is a slight steepening relative to prior expectations: markets were pricing in a 63% chance of a December rate hike prior to the data release.
Here are the data driving the greenback this morning:
- USD Unemployment Rate (AUG): 3.9% versus 3.8% expected, unch.
- USD Change in Nonfarm Payrolls (AUG): +201K versus +190K expected, from +147K (revised lower from +157K).
- USD Labor Force Participation Rate (AUG): 62.7% from 62.9%.
- USD Average Hourly Earnings (AUG): +2.9% versus +2.7% expected, unch (y/y).
DXY Index Price Chart: 15-minute Timeframe (September 2018) (Chart 1)
Immediately following the data, the US Dollar traded higher versus the Euro and the Japanese Yen, with the Dollar Index (DXY) rallying from 94.95 to as high as 95.35 in the wake of the report. By the time this report was written, the US Dollar had eased off slightly. EUR/USD, which traded as low as 1.1562 after the release, was trading near at 1.1570 ahead of the US cash equity open.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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