Payrolls Report A Necessary But Insufficient Step Toward 75bp In Sept (1/2)

August's U.S. employment report doesn't significantly alter the near-term Fed hiking outlook.

• It's probably soft enough to preclude a 75bp hike as a "done deal" at least until the August CPI data comes out in a couple of weeks, and that justifies the 3+bp drop in implied pricing for the meeting (now 64bp, vs just under 68bp pre-payrolls).
• But the report was also strong enough to push off any talk of a dovish "pivot". In other words, a report like today's was probably a necessary though in itself insufficient for another 75bp move.
• Looking past the 0.2pp rise in the unemployment rate, the soft earnings growth, and the weaker-than-expected headline payrolls gains (when downward revisions are taken into account), August's employment report was mostly a positive report card on the health of the labor market.
• The higher unemployment rate is easily explained by stronger labor force participation, especially given the strong Household survey employment gains (which in turn will come as comfort to those concerned that their recent weakness was pointing to a more significant slowdown than the Establishment survey numbers suggested).
• The Fed will probably ignore the wage growth slowdown; they are more focused on metrics with fewer compositional issues (median wage trackers, Employment Cost Index, etc).