“Goldilocks” August Payrolls Report Eases Hike Expectations

Rates fall after payroll, unemployment, and wage data released. Swap rates and Treasury yields fell across a steepening curve today, with the 2-year yield falling ~11 bps to 3.396% and the 10-year yield falling ~6 bps to 3.189%. This came after data releases provided evidence for a soft economic landing, as payrolls decreased from last month but still exceeded expectations, unemployment increased only slightly, and wage inflation cooled. The market is now split on the Feds’ upcoming decision between a 50 and 75 bp rate hike in September.

August payroll data exceeds expectations. Nonfarm U.S. payrolls increased by 315k in August, above forecasts of 300k but far below last month’s revised figure of 526k. The largest job gains occurred in professional and business services, healthcare, and retail trade, with the data illustrating increased hiring across many sectors. Labor force participation rose 0.3% on the month to 62.4%, which helps to explain the increased unemployment rate.

Week ahead. Fed Vice Chair Lael Brainard, Fed Chair Jerome Powell, and Board of Governors member Christopher Waller are set to make public comments on Wednesday, Thursday, and Friday, respectively. Data releases will include S&P global composite PMI on Tuesday morning, U.S. trade deficit figures on Wednesday, and initial jobless claims on Thursday.