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There can be little argument that the focal point of the markets recently has been what I call "Fed expectations." In other words, the expectations for when Janet Yellen's bunch of central bankers will pull the trigger on the next rate hike -- and the one after that.

The discussion in the markets has been whether or not a rate hike at the FOMC's September meeting was a serious consideration or just posturing by some Fed officials attempting to gain credibility. While most of the analysts I trust do not believe Yellen would hike rates in September, the thinking/worry this week has been that another uber strong jobs report just might allow the Fed to take action at this month's meeting.

So, with the Big Kahuna of economic data just released a couple minutes ago, let's take a look at the numbers and see what we can make of the report.

First, understand that August has traditionally been a weak month for job growth. And with the Bureau of Labor Statistics reporting that nonfarm payrolls in the U.S. grew by 151,000 last month, the historical trend appears to have remained intact. The payrolls number was well below the consensus expectations of 188,000 and also considerably weaker than July's 275,000.

As for the revisions to the data from the last two months, July's nonfarm payroll total was revised higher to 275K from 255K while June was revised down to 271K from 292K. According to my calculator, the net change for the prior two months was a loss of 1,000 jobs. So, no big deal there.

It is also worth noting that despite the "weakish" August number, the average monthly gain in nonfarm payrolls over the past three months (economists like to smooth out the data series to get a better picture of the trend) remains robust at 232K. So, one can conclude that the pace of job growth remains strong, but appears to be slowing.

Next up is the unemployment rate, which came in at 4.9% in August. This was actually a tenth above the consensus expectations, which also causes the report to be placed in the "miss" column.

The other key number I like to look at in this report is the number of jobs created in the private sector. On Thursday, ADP reported that according to their sources, job growth in the private sector in August totalled 177K. So, again, this would be another "miss" from the government's report.

So... taken as a whole, this morning's jobs report has to be labeled "WTE" (weaker than expected). However, the bulls will argue that the report actually falls into the Goldilocks category as it wasn't strong enough to force the Fed to act later this month nor weak enough to cause anyone to worry about the state of the economy.

Then when you take yesterday's ISM Manufacturing report into account, it is hard to argue that the economy is "hot enough" to warrant the Fed taking action in a few weeks.

In case you missed it, the ISM Manufacturing Index, which is designed to indicate if the sector is expanding or contracting, came in on the punk side. For August, the headline index was reported at 49.4, which was well below the consensus for a reading of 52.0 AND below the all important line of demarcation at 50.0 (readings above 50 signal expansion and under 50, contraction).

The dive in the ISM Manufacturing was the largest in nearly 2 years and all of the major components including new orders and employment also surprised to the downside. As such, this report has to have raised some eyebrows among the Fedheads.

Stock futures have improved a bit on the nonfarm payroll report, although not dramatically so. The thinking would appear to be that the chances for a September rate hike (which were not strong to begin with) have fallen a fair amount in the last 24 hours, which takes pressure off the dollar, and in turn, the pressure on earnings of multinationals. And this may be enough to cause the shorts to cover today.

Whether or not the market will continue to see the report as a positive remains to be seen. After all, it is the last real summer Friday and we have a long weekend ahead. Thus, traders may decide to close their books and head to the beach early today.

On that note, here's wishing everyone a great Labor Day Weekend!

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of Global Central Bank Policies
      2. The State of U.S. Economic Growth
      3. The State of the U.S. Dollar

Thought For The Day:

If you shoot for the stars & hit the moon, it's OK. You've got to shoot for something. -Confucius


Wishing you green screens and all the best for a great day,

David D. Moenning
Chief Investment Officer
Sowell Management Services

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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