Karim writes:

Very poor job data with a gain of only 96k and a net revision of -41k. Somewhat offsetting is the 0.2% drop in the unemployment rate from 8.3 to 8.1% (which along with April 2012 is the lowest since January 2009). The biggest swing (and miss) was manufacturing employment, which shifted from a gain of 23k to a fall of 15k, indicating that global economic weakness is affecting U.S. exporters. Indicators of domestic demand fared better as trade swung from a gain of 11k to 29k jobs, finance from -2k to +7k, and leisure/hospitality from 28k to 34k.

Though August payroll data is typically revised higher, the data affirms the notion the economy is hovering around or just below trend growth of 2-2.5%.

The data increases the chances of QE3, unsterilized and possibly open-ended purchases of Agency MBS and USTs, but I still think later in the year. An open-ended program likely requires a consensus Fed economic forecast, which is still a work-in-progress. Next week’s FOMC meeting will be contentious, and a close call, however.

Other data highlights:

• The drop in the unemployment rate came as a result of a drop in the participation rate from 63.7% to 63.5% (labor force fell by 368k).
• The U6 measure improved from 15% to 14.7%, but the median duration of unemployment rose from 16.7 weeks to 18 weeks.
• Average hourly earnings were unchanged and aggregate hours gained 0.1%, a weakish combination for personal income.
• The diffusion index dropped from 54.3 to 50.2