Non-Farm Payrolls: Strong Growth, Missed Expectations
By TRG Advisors on September 3, 2021
Limited action throughout the week was largely in anticipation of Friday’s Non-Farm Payroll (NFP) numbers. The economy added +235 thousand jobs in August, compared to consensus expectations of +725 thousand. A negative surprise was likely, given the high expectations, record comps, and ADP’s private payroll survey numbers that were released earlier in the week, which also widely missed expectations. Businesses in re-opening industries, primarily leisure and hospitality, saw a slowdown in employment growth compared to the very high growth numbers from the prior three months.
Average monthly NFP growth for the past ten years is +125 thousand, so August numbers are still significantly above trend. Additionally, we see employment levels hovering around 5 million below pre-pandemic levels and 10.1 million job openings – a long runway for continued recovery and growth. Employment numbers in the months ahead will likely experience a tailwind from ending employment benefits. This sets up a likely scenario for the Fed to announce a taper timeline during their November FOMC meeting.
Wage Pressure and Demand Stay High. Average Hourly Earnings beat expectations, rising +0.6% MoM and 4.3% YoY. The data continues to highlight a tight labor market and short-staffed businesses competing to attract employees, primarily in the service economy. Demand remains high, though off record-high July levels, as the service economy continues to expand, with ISM Services Index reporting 61.7 (in line with consensus) and New Orders (a leading indicator) coming in at 63.2 – with nearly all industries reporting growth. ISM commentary largely focused on the tight labor market and supply chain challenges.
August Consumer Confidence Lowest Since February. Consumer confidence continued to reflect fears from the Delta variant as low expectations were a drag on the index. Low expectations reflect the spread of Delta variant, downslope of Biden’s approval rating, and a looming cliff for the government’s pandemic benefits. While consumer fear is significant, there is limited reflection of economic tailwinds created by the FDA-approval of booster shots, increased vaccination rates, Delta spread showing signs of peaking in early-exposed regions, and higher business confidence as we’ve seen capex and enterprise spend rising along with solid unemployment trends.
Bond Market Reacts to Job Numbers. The market was subdued before the holiday weekend until Friday’s wide miss on the July Non-Farm Payroll numbers. The spread of the Delta variant was a deciding factor in the miss, as leisure and hospitality hiring drastically slowed on the month. This report gives the Fed more wiggle room in their taper discussion and could allow them to delay tapering until the December meeting. Partially offsetting the miss in payroll numbers was a beat in average hourly earnings (0.6% vs 0.3% estimates). The Treasury curve steepened after the missed payrolls numbers as traders positioned for a delay in normalizing monetary policy. Investment Grade spreads were muted on the week while High Yield widened by 5 bps.
The Week Ahead. A heavy volume of conferences next week will provide further insight into company outlook and visibility. Companies we follow that are participating in conferences include WMT, LOW, EL, KMB, UNP, EOG, VLO, SLB, GOOGL, MA, MAR, INTC, NXPI, LRCX, JNJ. JOLTS Job Openings and Consumer Credit stats get reported Wednesday. On Friday, we receive PPI figures and Wholesale Inventories.
