"Drop in the US Unemployment Rate Not Sufficient to Mask Disappointing Report"

From Marc to Market:

The US unemployment rate unexpectedly fell to 4.3%, a new multi-year low, but it is a misleading optic for what is a disappointing report. It is likely not weak enough to put much doubt into expectations for a Fed hike later this month, but it will reinforce the caution in the Beige Book and in recent comments from some Fed officials.

Besides the decline in the unemployment rate, and a further decline in the under-employment rate (U-6) from 8.6% to 8.4%, there is little positive in today's report.

Non-farm payroll growth fell to 138k, nearly 50k below median expectations, which like our own, had been bolstered by the weekly jobs claims, withholding tax, and the ISM. There is not a good month-to-month fit with the ADP report, but the strength of it yesterday, seemed to have precluded today's downside surprise. Adding insult to injury, the back to months saw jobs growth revised 66k lower.

Moreover, the drop in the unemployment rate can largely be explained by the decline in the participation rate from 62.9% to 62.7%. This unwinds this year's improvement in the participation rate, and bring it back to where it finished last year....MORE