KNOWLEDGE CENTER

Knowledge Center Archive

Sep
12
2012

Podcast: August 2012 Payroll Report

By Sean P. Simko

Investors were optimistic leading up to the release of August's nonfarm payroll report, as the August ADP report release the previous day had surprised with the creation of 201,000, which was a strong follow-up to last month’s increase of 173,000. There was growth across multiple sectors. However, the payroll number came in at 96,000, which was a decrease of 45,000 from last month’s revised number. The data was another disappointment on the road to recovery. It is moving in the right direction, but the pace is too slow.

SHOW/HIDE TRANSCRIPT

Hi, my name is Sean Simko. I am Managing Director of SEI Fixed Income Portfolio Management. Today’s commentary focuses on the release of Augusts’ employment data, including the nonfarm payroll number and the market’s initial reaction.

Investors were optimistic leading up to the release of Augusts’ nonfarm payroll report, as the August ADP report release the previous day had surprised to the upside. The ADP report showed the creation of 201,000, which was a strong follow-up to last month’s increase of 173,000. There was growth across multiple sectors, including the service sector, which added 185,000 positions. The service sector increase is a strong number pointing to growth as the U.S. is a service-oriented economy. Jobless claims continue to point to a stabilizing labor market but that is nothing new. I would not characterize it as performing well. Sustained stronger growth is needed in order to shore up consumer confidence and reduce the unemployment rate, which stands at 8.1%.

Augusts’ nonfarm payroll number came in at 96,000, which was a decrease of 45,000 from last month’s revised number of 141,000. Augusts’ number was revised lower to 141,000 from 163,000. The average over the prior three months is 94,000 which is not a stellar number. Private payrolls increased by 103,000 showing that corporations were hiring last month albeit at a slow pace.

The stronger data pushed Treasury prices higher. The ten-year Treasury retested its recent highs in price, pushing the yield back down to 1.59%. The spread between the 2-year/10-year curve flattened by approximately 5 basis points to 136. Anchored by the Fed, the 2-year held firm at 25 basis points, 3 higher in yield than earlier in the week. The 30-year traded higher, pushing yields to 2.75%.

Augusts’ labor data was another disappointment on the road to recovery. It is moving in the right direction, but the pace is too slow. This data raises the odds of the Federal Open Market Committee announcing a third round of quantitative easing at next week’s FOMC meeting.

If you have any questions about this podcast or the financial markets, please contact your SEI representative.

Thank you.

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