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Some further improvement in the US labour market

07 September 2015
FED, US labour
US August employment data was consistent with “some further improvement” in the labour market. By itself that seems to meet the criteria for ‘lift-off’ for US interest rates in September, but it’s not that simple.
The only disappointment in the report was the increase of 173k in non-farm payrolls which was below expectations of a +200k result. But that disappointment is ameliorated by the observation that the initial estimate of August payrolls often undershoots the recent trend, only to benefit from upward revisions in subsequent months. 
Everything else in the report pointed in the right direction. June and July employment growth was revised up by a combined 44k, jobs growth is increasingly broad-based, hours worked remains consistent with above trend growth, and the average work week rose. 
Average hourly earnings rose 0.3% in the month although the annual rate of increase remains stuck at 2.2%. Most importantly, the unemployment rate fell to 5.1%, and is now bang on the mid-point of the latest US Federal Reserve (the Fed) estimate of longer run unemployment (NAIRU). On its own, this data fits the bill for some further improvement in the labour market and supports the case for ‘lift-off’ in September.

US Labour Market
Source: US BLS

That just leaves the Federal Open Market Committee’s interpretation of recent market volatility. As I said last week, market volatility by itself should not delay the Fed. Indeed, some volatility should be expected whenever the Fed starts any rate hiking cycle, let alone the first hike in nearly a decade. 
But it’s a different matter if the Committee views that volatility as indicative of factors that may impact the growth and inflation outlook in the US. To the extent that recent volatility has been due to concerns about growth in China, this week’s release of the usual monthly plethora of Chinese activity data will add further fuel to the debate. More on that later in the week.
This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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