July's super-strong jobs report eliminates some concerns about the health of the economy and labor market, but it is not viewed as enough of a catalyst to get the Fed moving on rate hikes by September.
Yet, traders and economists are now focused on the Aug. 26 speech by Fed Chair Janet Yellen to get a real read on the Fed's thinking. Yellen will be speaking at the Fed's annual symposium in Jackson Hole, Wyoming. where Fed chairs have been known to deliver important policy messages.
As for the jobs report, it soothed concerns that hiring was ebbing. There were 255,000 payrolls created in July, with 217,000 of them from the private sector. Economists had expected just 180,000 and the 75,000 additional workers were split between government hires and those of the private sector. The unemployment rate held steady at 4.9 percent.
Stocks opened with strong gains, Treasury yields and the dollar reversed losses. The yield jumped to 0.70 percent, from around 0.62 percent earlier in the day. The 10-year yield touched a key technical area of 1.54 percent.
"It's better. We're getting a little knee-jerk reaction. We'll see if that persists," said John Briggs, head of strategy at RBS. He said RBS' priority reading of market expectations shows the odds for a September rate hike moved to 30 percent and December odds moved to 54 percent from 42 percent before the number.
"It really doesn't change the Fed for September," he said.
But the number does answer some questions about the labor market, since it affirms a higher trend of growth than seen in the last several months. A surprisingly weak May report created jitters that were somewhat soothed by a strong report in June. Then the weak second-quarter GDP growth — of just 1.2 percent — raised broader concerns about the economy, and highlighted the fact that companies are not investing.
"I think a lot of people are trying to reconcile this low investment in cap ex and business spending with the strong jobs number. It's certainly entirely possible they can go hand in hand," said Jack Ablin, CIO at BMO Private Bank.
"If businesses aren't investing in the economy and productivity, they'll still hire people," he said.
Average hourly wages also were better than expected, up 0.3 percent, or an annual pace of 2.6 percent. The work week expanded by 0.1 hour to 34.5 hours, and the participation rate also improved slightly to 62.8 percent.
"When you look at services and leisure, these aren't the highest quality jobs, but incomes are going up," said Ablin. Leisure and hospitality gained 45,000 jobs.
But higher wage earners also gained, with professional and business services adding 70,000 jobs.
The number was helped by an unusually strong recent trend in government hiring, according to Peter Boockvar, chief market strategist at The Lindsey Group.
"The 38,000 increase in government hiring in July was the biggest one month gain since September, 2014. This comes after hiring 33,000 in June. The two month government increase of 71,000 is the largest two month gain since 2010. The prior 12 months averaged an increase of 10,000 per month," he wrote.
Ablin said he does not expect the Fed to act until it sees more evidence of improvement. "This keeps them doing nothing," he said. He added, however, that he thinks "the Fed is breathing a sigh of relief."
"It's encouraging. It keeps the party going. The stock market is going to like this. Good news is good news but it's not block buster news," he said. "I think the Fed is dovish. They want to see inflation before they start to raise rates."
The weak May report was revised higher to 24,000 from 11,000, and the June report, already a strong 287,000, was revised up to 292,000. Job gains now averaged 190,000 per month in the last three months.