The US gained 1.371 million jobs yet it was boosted by the government. Looking under the hood, the data is not that great and the downside correction in equities could continue, according to FXStreet’s analyst Yohay Elam.

Key quotes

“The headlines are impressive – a fall of the US unemployment rate to 8.4% and an increase of 1.371 million jobs, within expectations.”

“Out of 1.371 million jobs, only 1.027 million were private-sector positions, below expectations. Looking at government jobs, no fewer than 238,000 are temporary census workers – who are scheduled to be laid off at the end of September. That is the first reality check.”

“The headline unemployment rate has dropped to 8.4% from 10.2% in July – falling faster much earlier than projected. However, that figure is achieved when counting fewer people in the workforce. The participation rate is at 61.7%, still well the pre-crisis levels of around 63% and under 61.8% projected.” 

“Counting people who are out of work has become trickier in coronavirus times, amid government programs and rapid changes that make data collection more complicated than usual. The Bureau of Labor Statistics estimates that without these classification problems, the unemployment rate is around 9.1%. Moreover, the U-6 underemployment rate – which counts those too discouraged to look for a job and those unable to work fulltime – is still higher at 14.2%. Once markets realize that not all is rosy, they may turn down.”

“The headline number may slow down fiscal stimulus talks – Republicans may now feel relieved and opt not to provide new stimulus. And that may add additional pressure to stocks.”