US jobs data stays at “comfortable” level,providing Fed with flexibility for rate hike

Nonfarm payrolls slowed for second consecutive month from231k (revised up) to 215k, three month moving average at 235k

    Unemployment rate remained unchanged at recovery low of5.3%, labor force participation rate also unchanged 62.6%

    U6-Headline unemployment rate gap edged down 0.1 ppt torecovery low of 5.1 ppt, indicating a marginal increase of full timejobs relative to total employment

    Wage growth edged up from 0.0% MoM to 0.2% MoM, 2.0% YoYto 2.1% YoY; wage growth remains mostly disappointing, andexplains sluggish US consumption recovery

    Data is at a comfortable level for Fed, not strong enough toforce their hand, but showing positive signs of recovery; baselinescenario for rate hike remains September but we feel odds of delayare significant and growing amid lukewarm data

    Comment:

    The much anticipated jobs data came in mostly at or slightly below marketconsensus, but remained in a comfortable range for the Fed. The data wasparticularly sensitive, as too strong growth would have led to pressure to hike ratesin September, while too weak growth would raise concerns the recovery would bederailed by a stronger dollar and also apply pressure to delay the rate hike.

    Nonfarm payrolls continued to moderate below the three month moving average,but kept at a respectable level. Some slightly positive signs were seen in theshrinking of the U6-headline unemployment gap as well as wage growth, thoughthere was not any significant improvement. There still remains slack in the labormarket, and underemployment remains markedly over pre-crisis levels, while thelabor force participation rate remains at the lowest levels since the 1970s. 2015has however shown the job market take steps in the right direction.

    Overall, the job market appears to be at a relatively stronger level approaching theSeptember FOMC meeting than it did before the June FOMC meeting, thoughnonfarm payrolls have moderated in consecutive months.

    Consequently, a September rate hike may still be the most likely scenario,assuming the upcoming data is at or better than consensus, but we feel this ismuch less of a certainty than what the market consensus indicates. On a purelydata basis alone, we do not feel there is a significant case for hiking rates yet,particularly as inflation is likely to see further downward pressure due to the recentcommodity price slump. Furthermore, if there is really to be a hike in September,the lack of guidance in July’s statement is at odds with the previous rate hikeseries, when the Fed mentioned "policy can be removed at a pace which is likelyto be measured." We feel the odds of a further delay are significant and growing,particularly if external risks rise or data disappoints over the next month.