July Employment Gains Miss Expectations; Wages Remain Subdued

The Non-farm Payrolls report, which has become the most important datapoint of the month for fixed income investors, was released on Friday and showed a slowdown in the pace of hiring during the month of July.  Employers added 162k jobs versus expectations for gains of 185k.  The prior two months’ gains were revised down, bringing the six-month average below the 200k level that the Fed had indicated was the tipping point for pulling back on quantitative easing.  Bond prices rallied on the news, as some investors shifted their expectations for tapering (reduction in Fed bond purchases) to December versus September.  For SNWAM, another aspect of the report, wages, was as important to the market rally as the top line number.  An increase in part-time jobs and jobs from low-wage sectors led to hourly wages rising less than 2% y/y.  Another measure of income released by the Commerce Department showed that inflation-adjusted wages fell slightly in June.  The low growth of income puts less money in consumers’ pockets, which means little pressure on overall inflation and in turn, interest rates.