There’s been no shortage of debate Friday about whether 151K on the NFP print is a red light or a green light for a September hike. Bill Gross thinks so. Citi doesn’t. Goldman does. Markets have no idea. Here’s an excerpt from our full post-mortem (available here):
“We’re not much for conspiracy theories but come on. 151K on the jobs print?”
“If the Fed was looking for “optionality” they certainly got it with that number. Yes, it was below consensus, but not by a large enough margin to completely rule out a September hike. The other side of that coin is that it was just strong enough to where, if they wanted to, they could cite it as evidence that the jobs market is solid – especially in light of the previous two months’ prints.”
The thing is, as Rick Santelli put it earlier today and as we’ve been saying for months, is that the Fed can always find an excuse not to hike.
Now we don’t want to downplay the importance of US manufacturing data, but the Fed could easily roll out this week’s contractionary print next month along with a slightly subpar August jobs number (which everyone saw coming) as an excuse not to hike. Throw a few words about lackluster productivity in there and there you go. You’ve made the case to wait until December. Here’s some useful commentary on this precise issue from Deutsche:
“Despite relatively weak underlying growth, the latest employment number should raise the odds for a September hike. We have highlighted over the last few weeks the more pessimistic US outlook implied by the Markit PMI. This indicator has a short history (service PMI available since late 09), which is probably why it is not included in many trackers (for instance, the NY Fed tracker uses the ISMs but not the PMIs). The short history makes it difficult to ascertain the quality of the indicator. But the good performance of the PMI in
other major economies (eurozone in particular) and its track record so far in the US would suggest that it should not be ignored. Including it would point to underlying growth in a 1-2% range rather than 2-3% range.”
“The weakness in the ISM manufacturing would tend to corroborate this view. On that basis alone, it is not clear whether the Fed should be in play. The Fed is nonetheless may well be live for three reasons. First, Fed speakers have set a lower threshold in their speeches around the Jackson Hole’s meetings. Both Dudley and Williams have highlighted the fact that the Fed was not far from meeting its employment goal and that 50k-100k would be enough to ensure stable labour market conditions. With the latest numbers, the 3m moving average is 230k and the 6m moving average is 175k. The NFP was better than implied by the ISM employment. The weakness in the latter may have instead been captured by further decline in hours worked. This reinforces the point above that the underlying growth trend is tepid.”
Sounds like more confusion to us. Are they in or are they out? No one knows. It depends on which “data” they decide to “depend” on and in the event there’s some manner of Chinese FX market turmoil between now and the meeting, NFP, PMI, and ISM like will all just be meaningless acronyms.