Job creation was slightly stronger than expected by economists in August (+201,000 versus +190,000 expected), but the 3 month average of payrolls growth fell to its lowest level since the end of last year thanks to large downward revisions to June and July data totaling a decline of 50,000 versus what had been previously reported.

YoY jobs growth is once again slowing after a modest late-expansion uptick which had peaked as-of June. While jobs growth has slowed, it’s still rising at a very healthy pace on an annual basis. Despite ongoing jobs growth, the labor force participation rate has been basically stable for the past 5 years. One reason the LFPR is not rising along with employment is demographics: as the labor force ages, there are large outflows from employment to non-participation thanks to retirement. For instance, on average over the last 12 months, 3% of employed workers have left the labor force entirely. If they had been fired outright, it’s very unlikely they would not start looking for work immediately. Hence, the stability of the LFPR is almost entirely a demographic effect.

Saving the best for last, this was the strongest month of the expansion when it comes to wage growth. Total private wages rose 2.9% YoY, while production & non-supervisory wages (for non-managerial workers) rose to 2.8% YoY, fractional new high on an unrounded basis (+2.80% versus +2.77% in June). While job creation has slowed a bit, wages are continuing their slow process of acceleration after years of extreme weakness post-recession.

The US Census reported new factory orders that were lower than expected for July with a 0.8% MoM decrease to $497.8 billion. Orders were estimated to fall 0.6% after the 0.7% increase in June. On a year over year basis, new orders are still up 8.3%. Breaking this down, durable goods saw a decline of 1.7% MoM; that large decline follows a 0.9% increase the month before. While not as strong as the previous period, nondurable goods orders rose by 0.2%. These readings are inline with the preliminary release.

Within durable goods, the computers and electronic products industry saw the greatest gain of 0.9% MoM growth in new orders. Machinery was not far behind at +0.8% MoM. These gains were largely helped by mining, oil field, and gas field machinery which increased 13.7% MoM amidst rapid investment in new shale capacity.

The transportation equipment industry dragged down all industries in July. Factory orders excluding transportation equipment were up 0.2% MoM. The volatile transportation equipment industry was down 5.2%, with the largest contributors to this change being nondefense and defense aircraft and parts, which saw 35.4% and 34.4% decreases, respectively. Interestingly though, with the past two periods showing strong gains, defense aircraft orders are actually down 5% YoY versus nondefense aircraft being up 14.1% YoY. The drop in new orders for these two industries completely overshadowed strength in the ships and boats industry which gained 25%.

Shipments were basically unchanged from June to July, up only $0.1 billion, but still up 7.5% YoY. Just like new orders, when the transportation equipment industry is excluded, there was an increase of 0.6% MoM from June to July. While not as drastic as the change in orders, durable goods shipments are down 0.2% MoM. Nondurable shipments are also up 0.2% MoM, mirroring nondurable orders.

Inventories for all manufacturing industry groups grew by 0.8% MoM, down from the 0.2% reading for June. On a year-over-year basis, they are up 5.6%. Once again, nondefense aircraft was a major factor with a 6.7% MoM increase. All manufacturing industries inventories to sales ratio has been relatively flat the past few months. The current ratio sits at 1.35, up 0.1 from June. Nondurable goods remained at the 1.07 level, while durable goods saw a 0.03 increase to 1.63, the same as its May and April number. It is worth noting that both shipments and inventories readings do feed through to GDP calculations by the BEA. Since there were no huge surprises, they should not have a strong impact on Q3 tracking.

The release of the August ISM Non-Manufacturing report handily exceeded forecasts, coming in at a level of 58.5 versus consensus estimates for a reading of 56.8. The 1.7 point spread between the actual and reported number was also the biggest beat relative to expectations since the January report which was released on 2/5.  On a combined basis, accounting for each sector’s share of the overall economy, this month’s Composite ISM came in at a level of 58.8.  For perspective, the peak reading in this index for the current period was 59.9 last September.

The table below breaks down this month’s report by each of the index’s subcomponents.  On both a m/m and y/y basis, breadth in the report was strong.  The only two components that declined sequentially were Price Paid and Import Orders, while Inventory Sentiment was the only decliner relative to the same month last year.  The biggest gainers this month relative to July were Backlog Orders, Business Activity, and New Orders.

Individual investors continue to be in an optimistic mood, although bullish sentiment did see a slight decline in the latest week.  According to the weekly survey from AAII, bullish sentiment dropped from 43.5% down to 42.22%, which is still on the high side of the recent range.  It’s also the first back to back weeks where bullish sentiment has been above 40% since February.  Given the relative weakness in equities this week, one could argue that it’s a bit of a surprise that bullish sentiment didn’t fall further.

With the slight decline in optimism this week, bearish sentiment ticked slightly higher, rising from 24.39% up to a still relatively low level of 26.3%.