Payroll Numbers Disappoint

The European Central Bank was in the spotlight this week, but the focus today is on the U.S. labor market, following a surprisingly weak monthly jobs report this morning.

With respect to the conduct of monetary policy, the market was expecting some sort of easing action coming out of next week’s FOMC meeting. Minutes of the last FOMC meeting and Fed Chair Ben Bernanke’s Jackson Hole speech helped strengthen those expectations. Today’s jobs report will further advance these notions.

This is a weak report, proving once again that recent optimism on the labor market front may have been premature. The report brings back the QE debate to the front burner.

The Bureau of Labor Statistics (BLS) reported August non-farm payroll gains of 96K, below the roughly 125K expected and the 141K jobs in July (revised down from 163K originally reported). The revisions trend was clearly negative – with July and June both revised lower. The unemployment rate ticked down to 8.1% from 8.3% last month, driven primarily by a drop in the labor force participation rate to its lowest level since the early 1980's.

Thursday’s ADP report of strong private sector job gains appears to have been off the mark this month after accurately providing a preview of the BLS number in July. A total of 103K private sector jobs were created in August, compared to 162K in July, with the government sector suffering job losses of 7K. The ADP report showed private-sector job gains of 201K in August.

Manufacturing lost 15K jobs in August, compared to gains of 23K in July, while service sector jobs totaled 119K, compared to job gains of 139K in July and 54K in June. The manufacturing decline is particularly worrying as the factory sector was consistently adding jobs in this recovery, but seems to have lost steam lately as confirmed by the sub-50 readings on the ISM survey in the last two months.

Temp jobs dropped 4.9K, after steady gains in recent months. The average workweek remained unchanged at 34.4 hours, while average hourly earnings dropped by a penny to $23.52. The August average hourly earnings are up 1.7% from the same period last year.

In corporate news, the technology space has become very active in recent days with companies coming out with new products and services. In this holiday-shortened week alone, we have seen new devices from Nokia (NOK - Analyst Report), Google’s (GOOG - Analyst Report)Motorola unit, and Amazon (AMZN - Analyst Report).

The big launch is from Apple (AAPL - Analyst Report), which is expected to come out with the latest iPhone offering in the coming days, and a slew of products that will work on Microsoft’s (MSFT - Analyst Report) new operating system. Apple is also reportedly working on introducing a music streaming service along the lines of Pandora’s (P - Snapshot Report) offerings.