August’s jobs report underwhelmed all around. The economy created 142,000 jobs in August, absolutely positive, but far below Bloomberg’s survey forecast of 201,000. Previous estimates of job creation from earlier in the summer were revised down on the order of 59,000. Adding insult to injury, for the first time in three years, wages fell. The Federal Reserve’s decision to not raise interest rates last month was “vindicated,” as the jobs report signaled that economic headwinds remain. The unemployment rate held at 5.1%, though the percentage of adults in the labor force declined to its lowest reading since 1977. The New York Times pointed out that, “After averaging 260,000 net new jobs a month last year, the labor market is averaging just 167,000 over the last three months.” Manufacturing job growth continues to struggle while the U.S. Dollar strengthens on domestic growth. Without sufficiently high-paying jobs and noticeable wage growth, the argument for higher interest rates, a barometer of demand for capital, becomes less palatable. Around this time last year, we positioned portfolios for weak inflation. In the hours following the jobs report, the 10-year Treasury note’s yield fell around ten basis points, confirming our perspective that lackluster consumer spending exacerbated by mediocre job and wage growth will not be enough to encourage risk-taking and higher rates. If anything, over the past year, economic circumstances have deteriorated in the U.S., and our portfolios stand prepared to weather a brewing economic storm.
Sources: NYT, Bloomberg, SNWAM Research