Article / 08 August 2016 at 12:53 GMT

Daily Shot: A look behind the NFP numbers Team / Saxo Bank
  • NFP data revealed broad improvement in US labour markets
  • Merrill Lynch is sceptical that the jobs trend will continue
  • Demographics will push participation lower over time
  • US wage growth is gradually picking up momentum
  • Persistent skills gap leaves millions still jobless
  • US oil & gas as well as coal mining payrolls continue to decline

By Walter Kurtz*

We begin with the United States where Friday's payrolls report significantly exceeded forecasts. The labour markets improvement was broad, showing an increase in participation as well as in wage growth.  
1. Do we expect this trend to continue? Here is a comment from Merrill Lynch.
2. The labour force participation seems to have bottomed last December - for now. Over time, demographic forces will continue to push participation lower, but the current stabilisation is welcomed.

3. US wage growth is gradually picking up momentum. Companies will need to boost productivity to maintain margins.
4. On the other hand, US underemployment (U-6) has stalled.

5. The chart below indicates that there are millions of people who are not in the labour force but want a job. Some of this is due to the persistent skills gap. We no longer have the construction boom that absorbed a great deal of low-skilled labour during the "bubble" era.

jobs now
6. Average US duration of unemployment remains elevated relative to historical levels.

7. US oil & gas as well as coal mining payrolls continue to decline (on a year-over-year basis).

oil and gas

Here is how select markets reacted to the payrolls report.
1. Treasuries sold off after having rallied in response to the Bank of England action on Thursday. Below is the 10-yr treasury yield.


2. The Fed rate hike probability this year rose - approaching even odds again.

3. The US dollar rose as well.
4. It was a bit surprising to see the US equity markets jump to new records given the increase in the rate hike probability and a higher dollar. It's important to keep in mind that the current equity valuations only make sense (perhaps) at the historically low rates we have today.

— Edited by Clare MacCarthy
* Walter Kurtz is an alias
**This is an abridged version of the Daily Shot. To subscribe to the full version click here. E-mail addresses are never shared with anyone.


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