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Job Gains Disappoint

Overview: Over the past week, investors were focused on the key monthly Employment report. While its headline number revealed a significant shortfall in job gains, other components offset this weakness, and investors viewed the report as roughly neutral overall. As a result, mortgage rates ended the week with little change.


The highly anticipated Employment report released on Friday confirmed that the spread of Covid has had a negative impact on job creation, especially in areas such as the leisure and hospitality sectors. The economy added just 235,000 jobs in August, far below the consensus forecast of 720,000, and down from gains of about one million in each of the prior two months. However, there were some offsetting factors which caused investors to downplay the magnitude of the shortfall. Most notably, education jobs sharply underperformed expectations, but this likely was due to distortions in the seasonal adjustment caused by the pandemic. The data is adjusted to reflect historical seasonal trends such as the start of the school year, and the pandemic has altered the timing of many of the usual hiring and firing patterns. The unemployment rate declined from 5.4% to 5.2%, matching expectations, and the lowest level since prior to the pandemic. Average hourly earnings, an indicator of wage growth, rose 0.6% from July, well above the consensus of 0.3%. They were 4.3% higher than a year ago, up from 4.1% last month. Overall, the strong wage gains and the likely distortions to the figures in some areas muted the reaction to the disappointing headline number for job gains. Another significant economic report released this week from the Institute of Supply Management (ISM) revealed the expected strong results. The national service sector index fell to 61.7, down from a record high last month. Levels above just 50 indicate that this large sector of the economy is expanding, and readings above 60 are rare.

Week Ahead

Looking ahead, investors will monitor comments from Fed officials for hints about the timing of future monetary policy changes and will track Covid case counts globally. Beyond that, the next European Central Bank meeting will take place on Thursday, and investors will be looking for guidance on the timing for the removal of monetary stimulus in Europe. In the US, The Consumer Price Index (CPI) will be released on September 14. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Retail Sales will be released on September 16. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key indicator of growth.


Monthly Job Gains (millions)



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