The US dollar was up sharply against the euro. That change came on the heels of some head-scratching labor market data out of the U.S. That was evident in the NFIB report, which found an unexpected drop in private payrolls. This growth has led many investors to worry about the health of the US employment market. In August, US private payrolls rose by 54,000, falling short of analysts’ expectations of 65,000 and representing a significant decline from July’s revised figure of 106,000.
This month’s ADP Employment report brought a number of key takeaways. The good news is that the labor market continues to add more jobs, albeit at a much slower rate. This rapid development has led market participants to adjust their expectations for what will happen with the economy going forward. These disappointing payroll figures are in glaring contrast with the newly revised Q2 Nonfarm Productivity. This figure was revised upward from 2.4% to 3.3%, further complicating the already confusing economic narrative.
Unit labor costs softened to 1.0%, vs expectations for 1.6%. This recent decline could mean that productivity is increasing, at least on some level. It looks like wage pressures aren’t quite as strong as we once imagined. The recent shifts in the wage-productivity dynamic may hold important clues for where inflation and monetary policy are headed in the future.
Traders are counting on further guidance about economic conditions. They’re now looking ahead to tomorrow’s S&P Global Composite and Services PMI, both of which are forecasted to remain unchanged at 55.4. Together, these indices will provide a much clearer picture of the health of the services sector. Look for their release later Thursday.
The forward-looking ISM Services PMI is expected to come in at 51.0. This 220,000 in net new jobs represents continued strong expansion in the services sector, with a clear sign that growth is decelerating. The services sector is the engine of the US economy. Given this sector’s unique positioning within the broader economy, any volatility in this area can have profound reverberations on overall growth outlooks.
Despite weak to mixed labor data outlined below, the US dollar regained traction and topped the raw forex market. The Greenback rose broadly against a trade weighted basket of currencies. That jump was driven by the idea that even with some cooling apparent in payroll growth, productivity and labor costs are still shaping up to be pretty darn spiffy.
Closures from recent data played a large role in depressing initial jobless claims figures. They increased to 237,000, an increase from 229,000 the week prior. This increase in initial claims might reflect a small but significant softening in the labor market. It remains trapped in an increasingly tight range that has defined price action since early August.