USA manufacturing contracted in August for the first time since February, as new orders and output plummeted and factories cut jobs, according to information released Thursday by the Institute for Supply Management.
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As it now stands immediately prior to Friday’s NFP release, the Fed Fund futures market is showing a 24% implied probability of a rate hike at the September meeting.
With the unemployment rate at an eight-year low, there are more job openings than people on the market with the skills to fill those roles.
Analysts have said the central bank is most likely to hold off raising rates in September, given inflation rates that run below its 2 percent target and the upcoming USA presidential elections in November.
15-year FRM this week averaged 2.77 percent with an average 0.5 point, up from last week when it averaged 2.74 percent.
The step-down in employment would come after the economy created a total of 547,000 jobs in June and July.
Plus, this report could tilt the narrative for the job market. This is up from last week’s 3.43% but still down from last year’s 3.89%. In addition, the Institute for Supply Management said on Thursday factory employment declined in August for a second straight month. Among them is Fed Board Governor Lael Brainard, who has warned of downside risks to the economy and said the rate hike path needs to be “shallow”.
Clearly, another better-to-stellar outcome following the last two very positive months should increase the rate hike probability substantially, which should then further boost the recently surging dollar while further pressuring depressed gold prices. A year ago, the 5-year ARM averaged 2.90 percent.
“The reference week for the payroll survey ended August 13”.
A weak report on manufacturing Thursday made it more likely the Fed will be cautious, economists said. “We expect average hourly earnings to have been flat”. Despite some gains, the participation rate remains near multi-decade lows, in part reflecting demographic changes.
Even though the Fed may take this into account, it would be hard to explain away, and would not make a compelling case for a rate hike, North said. “Mortgage rates have hovered between 3.41% and 3.48% for the past ten weeks”.
A solid payrolls gain would add to July consumer spending, residential construction and durable goods orders in suggesting a pick up in economic growth after output rose 1.0 percent in the first half of the year.
The U.S. private sector added 177,000 jobs in August, compared with expectations of 175,000.
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While the August jobs report will be closely scrutinized, it may be less reliable than other monthly jobs figures.
