3 takeaways from the August NFP report

The highlight of the last trading week was the August NFP report in the United States. Financial markets moved in tight ranges until the report’s release on Friday.

Everything pointed to a disappointing jobs report showing that the labor market softens. After all, related economic data during the week surprised negatively, as mentioned in this article here.

The headline number came out better than expectations – 187k vs. 169k expected. However, details of the Employment Situation Summary published by the US Bureau of Labor Statistics were not so good.

The report has a little bit for everyone – both bulls and bears. One might say that it was robust enough to keep the odds for another Fed hike high. However, one might also say that it confirmed that the labor market in the US softens, albeit gently.

Previous data keeps being revised downward

Once again, previous data was revised downward. More precisely, it was the 7^th consecutive month when the previous data was negatively revised.

This year, the cumulative negative revision number reached 355k from January to July. It confirms the case that the labor market softens.

Unemployment rate ticks higher

Still, on the negative side, the unemployment rate ticked higher from 3.5% to 3.8%. It reflects the percentage of unemployed people and actively seeking employment in the previous month.

The market participants closely watch the unemployment rate because it often acts as a threshold to the Fed. In previous cycles, the Fed used it specifically to signal the end of an easing cycle.

By ticking higher, it further confirms that the labor market softening is happening.

More Americans are looking for work

On the positive side, the Labor Force Participation Rate ticked higher. It rose to 62.8% in August, the highest level since the COVID-19 pandemic.

It means that more Americans are looking for work. More precisely, 736k entered the labor force, according to the latest data.

Summing up, it was a mixed report. On the one hand, the Labor Force Participation Rate ticked higher, and the headline number was better than expectations. On the other hand, the unemployment rate ticked higher, too, and the previous month’s data was once again revised lower.

As a result, the markets reacted accordingly. Initially, the US dollar declined, and stocks advanced, only for the entire moves to be reversed by the end of the trading day.