The U.S. economy added a net 201,000 jobs in August. That was above the projection of 187,000 from economists surveyed by Briefing.com. Government statisticians revised the July job gains to 170,000 from 153,000. The official unemployment rate remained at 3.9%.
So why hasn’t the U.S. stock market greeted this good news with joy? Because the jobs gains and the increase in average hourly earnings to a 2.9% annual rate makes the near certainty that the Federal Reserve will raise interest rates at its September 26 meeting even more certain. The odds of a September 26 interest rate increase, according to the CME FedWatch tool, climbed to 100% today (99.8% odds of a 25 basis point increase and 0.2% odds of a 50 basis point move.) That’s up from odds of 96% on August 7. The odds for an additional 25 basis point increase at the December 19 meeting rose to 74.3% today from 70.9% on September 5 and 67.4% on August 7.
The worry–and the reason that today’s news increases the odds of a December interest rate increase–is that maybe, just maybe, the economy is finally starting to see wage inflation as employers start to compete for workers. The 0.4% month to month increase in the average hourly wage in August follows on a 0.3% increase in July. Economists were looking for a 0.2% increase.
As of 12:30 p.m. New York time the Standard & Poor’s 500 stock index was down 0.33% and the Dow Jones Industrial Average was off 0.58%. The NASDAQ Composite, which had been up earlier in the day, was down 0.41%. The iShares Emerging Markets ETF (EEM) was lower by 0.74%. It too had been up earlier in the day.
The moves CBOE Standard & Poor’s 500 Volatility Index, the VIX, encapsulate the day so far. The “fear” index had been lower this morning as the emerging markets crisis took a breather with the index dropping back to 14.59. As of 12:30, however, the index had climbed by 3.34% for the day to 15.14.
