Payrolls Rise by 187K, Setting Gold and USD on Opposite Paths

AUGUST LABOR MARKET REPORT

• August U.S. nonfarm payrolls increase by 187,000 versus 170,000 expected
• The unemployment rate rises to 3.8%, as the participation rate ticks up to 62.8% from 62.6%
• Average hourly earnings rise 0.2 % m-o-m and 4.3% y-o-y, one-tenth of a percent below estimates in both cases

Most Read: Indices on Track for Second Week of Gains – FTSE 100, Nasdaq 100, DAX 40

U.S. employers added to their workforce vigorously last month despite the advanced stage of the business cycle, undeterred by the Federal Reserve’s most aggressive tightening campaign in decades, underscoring the labor market’s exceptional resilience and its ability to provide support to the broader economy during the latter part of 2023.

According to the latest figures from the Bureau of Labor Statistics, the country created 187,000 jobs in August, exceeding the 170,000 expected by Wall Street analysts, following a downwardly revised 157,000 increase in July. Meanwhile, the unemployment rate ticked up to 3.8% despite strong hiring activity, as the participation level jumped to 62.8% from 62.6%, indicating a better balance between supply and demand for workers (labor force increased by 736K).

UNEMPLOYMENT RATE AND NONFARM PAYROLLS

Source: BLS

Elsewhere in the nonfarm payrolls survey, average hourly earnings, a powerful inflation gauge closely tracked by the Federal Reserve, rose by 0.2% monthly, bringing the annual rate to 4.3% from 4.4% previously, one-tenth of a percent below consensus estimates in both cases, a welcome development for policymakers.

LABOR MARKET DATA AT A GLANCE

Source: DailyFX Economic Calendar

The moderation in pay growth coupled with resilient hiring brings positive news for the Fed, as they signal that price stability may be restored without sacrificing the economy to the altar of a 2% inflation target. This situation presents the FOMC with the opportunity to engineer a soft landing, something that has historically been challenging to achieve when aggressive tightening measures were implemented.

At the Jackson Hole Symposium, Fed Chair Powell indicated that the institution will “proceed carefully” in any further move after having already delivered 525 basis points of tightening since 2022. Today’s data reaffirm the call for circumspection, giving the bank cover to remain cautious and reducing the likelihood of additional hikes.

Immediately following the release of the employment report, the U.S. dollar, as measured by the DXY index, deepened its session’s pullback, dragged lower by falling Treasury yields. Meanwhile, gold prices accelerated higher, gaining as much as 0.7%, bolstered by the moves in the fixed-income space. These market dynamics may gain momentum in September.

US DOLLAR, GOLD & YIELDS CHART

Source: TradingView