Benzinga Talks With Experts: Economists React To The Weak Jobs Number

U.S. stocks surged on Friday after a disappointing August jobs report, which led investors to believe a rate hike out of the Fed is not a likely option for September. Although a 151,000 new jobs figure is not negligible, it still represents a deceleration in relation to the previous month.

Following the release of the August numbers, Benzinga talked with TD Ameritrade’s Chief Strategist JJ Kinahan, and DriveWealth’s Head Market Strategist Brian Dolan. Below is a look at their reactions and reflections.

Industries Are The Key

Kinahan expressed disappointment with the figures, not only because the number missed estimates, but also because wage growth fell short of expectations. In addition, the industries that saw the most jobs created (hospitality and social services) were “not something to get as excited about as we’ve been in the past.”

“Social services may be a little bit seasonal in that many of those jobs may be related to schools getting back — not that there’s anything wrong with hospitality type jobs — but they tend to be stepping stones rather than careers,” he explicated.

Related Link: El-Erian: Jobs Number Creates "Tricky Situation" For Fed

On the other hand, jobs were lost in the manufacturing and construction industries. And, even though the United States is “not a manufacturing society… healthy economies create those jobs,” Kinahan added.

Rate Hike Pushed Back?

When Benzinga asked Kinahan if he thought lower jobs and auto sales numbers took a September rate hike off the table, he assured the probability had already fallen to 25 percent, from 30 percent a couple of days ago. “Fed funds was telling us that the September rate hike was kind of doubtful anyway. I think this just helped to perhaps — I won’t say put a nail in a rate hike — but just move the time frame more to December. And I think December is going to have a lot of pressure around it, just like December of last year did for a rate hike,” he continued.

The expert then went into the hike delay and the elections. A hike is more likely to come in December, “because with elections — not just presidential but congressional — the markets will be in some sort of flux anyway. This gives everybody a few weeks to digest everything and say ‘Ok, here’s where we’re going,’” he expounded.

With the summer over, people will go back to work next week. This is certainly a catalyst. “Now the market will start taking the presidential election seriously so we could see an increase in volatility starting in the near-term as people start to position themselves for it,” Kinahan voiced.

August Is A Historical Underperformer

Dolan also believes the August jobs figure led markets to, yet again, price out a September hike. “I think that's a mistaken reaction that may not last long. August jobs data have a history of underperforming, and we've had above-trend jobs gains in the last two months, so a slight miss like this shouldn't be taken as a disappointment,” he commented.

More importantly, he went on, this doesn’t change the bigger picture of the U.S. economy, which is still quite steady. This is why the Fed is focusing on another question:

Is the United States outlook solid enough to withstand higher rates?

The economist does not think Friday’s figures suggest otherwise. “I'd keep an eye on the US dollar as an indication of the real likelihood of a Sept. rate hike, and so far it's shrugging off the softer data. To me, that suggests risk sentiment and risk assets are not out of the woods yet. It's going to be an interesting three weeks until the FOMC,” he concluded.

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Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.