Karim writes:

NFP Key Takeaways

  • Several sub-texts, mainly that the softer news was in prior months and that the better news was in the most recent month (August).

Yes, though August is subject to revision, and the underlying ‘private payroll’ growth, which lags fiscal adjustments, is now looking like it’s been hurt by the year end tax hikes and subsequent sequesters.

  • Net payroll revisions of -74k definitely the soft side of this report; with a 169k gain for August close to expectations.


  • The Income proxy at +0.7% for August (jobs x hours x wages) definitely the strong side of this report.

Yes, though Friday’s +.1 for personal income is more ‘macro’

  • The rise in the diffusion index from 55 to 59 also good news as job gains are more broad based.

Ok, fewer jobs but more spread out.

  • The U6 measure fell from 14% to 13.7%, and most other measures of underemployment also fell.
  • The Unemployment rate fell from 7.4% to 7.3% as the 312k drop in the labor force offset the 115k drop in the household survey
  • The Part rate is now at its lowest since 1978-which will most certainly fuel the structural vs cyclical debate

Yes, as it looks like un and under employed are transitioning to ‘out of the labor force’, and participation rates are falling for younger people as well and if you say half the drop in participation is cyclical you can add about 4% to the un and under employment rates.

  • This outcome shouldn’t effect tapering at the September FOMC meeting and if anything, may accelerate the pace of tapering given how close we are to the 7% unemployment rate level that Bernanke identified in June as being consistent with the end of QE.

Agreed. The Fed is heck bent on tapering. They don’t like QE as a tool. And Jackson Hole had presentations showing it doesn’t work with regards to output, employment, CPI, etc.

  • Its highly doubtful the part rate will influence the tapering decision as Bernanke knew full well in June that the part rate was on a long-term decline when he set the 7% level (the same as when the Fed set the 6.5% threshold last December). I expect a more nuanced discussion of the part rate in speeches and the minutes.
  • Recall, payrolls were averaging 90k/mth when the Fed set out on QE3.

And the term structure of rates was lower, questioning what QE actually accomplishes in that regard, as it’s still going full force at the moment.

  • Any decision not to taper or to draw out the taper next year would be more due to the signaling qualities of QE (they wont be hiking as long as they are buying).

A few observers have also pointed out that August payrolls have had upward revisions in 11 of the past 13 years. This is possibly due to the earlier start of the school year over time, which may also have had an impact on the labor force dynamics. Chart below from SMR.

Full size image

New Fed Chair

  • Its increasingly expected that the nomination of the new Fed Chair will take place between the Sep 18 FOMC meeting and the Annual IMF/WB Meeting in DC on October 11-12.
  • I’d put the odds on Summers around 75%.

Confirmation is another story, of course. But seems his odds of confirmation should be better than, say, Jamie Dimon… 😉