The US equity markets have remained resilient in the face of poor US non-farm payroll growth in August. The consensus estimate was for an increase of 735,000, however the reported figure was just 235,000.

Two factors explain the market’s apparent irrational exuberance to what appears at first glance to be a very bearish jobs report.

First, the media has focused on one specific aspect of the report, which presents an overly dismal picture of the American jobs market. A more detailed and stoic examination of the data depicts a more optimistic scenario.

Second, the apparent weakness in the jobs data is likely to prompt the Federal Reserve to postpone any plans for tapering bond purchases that are part of its economic support measures, which is likely to underpin current equity valuations.

While the August headline non-farm payroll figure was distinctly disconcerting, other aspects of the jobs report were far more encouraging.

The unemployment rate fell to 5.2% in August from 5.4% in July. Moreover, wages continued to grow, increasing 4.3% on a year-on-year basis, and 0.6% on a monthly basis. This compares with estimates for 4% and 0.3% respectively. In addition, the job gains for July were revised up to 1.1 million.

Another potential source of optimism relates to labour shortages. The removal of additional unemployment insurance payments is likely to act as a catalyst for workers to re-enter the jobs market. Better access to childcare as schools reopen should also remove a further obstacle for individuals hoping to get back into work.

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