August Jobs Report – What does it Mean?

Written by: Ryan Bouchey

The August jobs numbers are out and for all intents and purposes it was a big miss. Economist had forecasted 220,000 jobs being added and only 173,000 were created, and the unemployment rate actually fell to 5.1%. This was a very important reading as it’s the last piece of major economic data prior to the Federal Reserve making a decision on interest rates at their September meeting in two weeks. Some things to keep in mind.

 
• Historically speaking, the jobs reports tend to be revised upward. Even though this was a big miss today, there is potential for this number to be revised upwards next month after September’s reading.

 
• Don’t fear a rise in interest rates. Many investors and media talking heads would lead you to believe that the markets won’t be able to survive a rise in rates because the low rates are such a crutch to both the markets and economy. The Federal Reserve is raising rates because of the strength in the economy and this should continue to translate into stronger corporate profits and the potential for higher stock prices.

 
• Be prepared for short term volatility. A rise in rates may cause the markets to go down in the short-term but overall this will be good for the markets. With interest rates as low as they are, a rise in rates at this level has a positive correlation with the equity markets – meaning that stocks should continue to go up as rates rise.

 
• The rest of the U.S. economy and European economy are growing in a positive manner. The U.S. economy continues to show strength in automobile sales, new housing and existing housing starts. In Europe, they are implementing a dovish monetary policy (similar to what the U.S. did with quantitative easing) and their manufacturing continues to show improvement.

 
With the negative headlines coming out of China there is still uncertainty of the timing of when the Fed will raise rates and this report doesn’t necessarily provide clarity to the picture. In the sense that it was a big miss, it gives the Fed an excuse to not raise rates in September. However, with the unemployment number going down to 5.1% and the uptick in wage growth, there’s enough reason for the Fed to also potentially raise rates. We’ll know the answer in two weeks and in the meantime continue to stay disciplined and try not to overreact to the big intraday market swings we’re currently seeing.