Based on the price-to-earnings ratio, U.S. stocks have actually become more expensive even as share prices have come tumbling down. In fact, the P/E ratio for the Standard & Poor’s 500-stock index, based on earnings over the previous four quarters, has risen to just over 24 from around 19, according to S&P.
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Why the bear market is alive and well
By Paul J. Lim
September 7, 2008
If there’s a silver lining to bear markets, it is that they make stocks cheap for the next wave of investors. But so far in this downturn, it isn’t working out that way in the United States.
Based on the price-to-earnings ratio, U.S. stocks have actually become more expensive even as share prices have come tumbling down. In fact, the P/E ratio for the Standard & Poor’s 500-stock index, based on earnings over the previous four quarters, has risen to just over 24 from around 19, according to S&P.
“Anyone tracking P/E’s is going to be discouraged by this market,” said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.
Though U.S. share prices are off by about 20 percent since the market peaked on Oct. 9, 2007, corporate earnings - the “E” in the P/E ratio - have fallen even further. In the first quarter this year, earnings of the S&P 500 sank 17.5 percent, according to Thomson Financial. But the index, excluding dividends, itself declined 9.9 percent. And in the second quarter, corporate profits declined by an estimated 22 percent while stock prices fell by a much more modest 3.2 percent.
Christopher Orndorff, head of equity strategy at Payden & Rygel, an asset manager based in Los Angeles, said, “the lack of P/E compression has created a headwind” for stocks.
Historically, bull markets emerge from bear markets after stocks sink to attractive levels for investors. Since 1938, the average P/E for the S&P 500 at the start of new bull markets has been 13, according to Standard & Poor’s Equity Research. That’s considerably lower than the current level of 24.
To be sure, at the start of the most recent bull market, on Oct. 9, 2002, the market’s P/E was a lofty 27. But this was after the tech bubble of the late 1990s, a bubble that distorted valuations altogether. Moreover, a multiple of 27 still represented a deep discount to where the market was trading earlier in the decade.
Why does any of this matter? Orndorff says the P/E ratio shows that the stock market still has serious problems.
“I would consider the expansion in P/E’s in the current environment to be another indication that we are still in a bear market,” he said, “and that the current rally is just a bear-market rally rather than a change in direction.”
Based purely on the raw data, P/E ratios appear too high to start a new bull market, said James Stack, editor of the InvesTech Market Analyst newsletter, based in Whitefish, Montana
But Stack and others argue that investors also need to weigh several other factors.
For starters, he noted that corporate earnings were being distorted by troubles in just one sector: the financials. According to S&P, earnings for financial companies are expected to drop about 70 percent this year versus 2007. That accounts for most of the profit drop for the overall market.
And just as there has been no drop in P/E’s so far in this bear market, there was no expansion of them in the previous bull market. In fact, from October 2002 to October 2007, the ratio gradually fell, to around 19 from 27. Therefore, valuations might not need to fall as much during this downturn.
Also, corporate earnings have been shrinking since last summer. When earnings decline this way, P/E ratios can be volatile - and even misleading, said Duncan Richardson, chief equity investment officer at Eaton Vance, the asset manager in Boston.
The last time profits were in decline - at the beginning of this decade - P/E ratios kept climbing even as stock prices fell during the bear market of 2000 to 2002.
Eventually, though, that trend reversed.
Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, also noted that based on “forward earnings” - projected profits, as opposed to actual results - the market P/E is already quite modest. Consensus earnings forecasts from Wall Street analysts for 2009 work out to a forward P/E of around 12 for the S&P 500.
Of course, Wall Street earnings projections have been way too optimistic in recent quarters, and David Rosenberg, the Merrill Lynch economist, thinks that they may still be too rosy. In a recent economic commentary, he says Merrill is expecting S&P 500 earnings to continue to decline through 2009. In fact, he says he thinks profits of the S&P index will come in at around $63 a share next year. That’s down from the $68 he is forecasting for this year, and a far cry from the $100 that Wall Street is expecting for 2009.
Using his projection, the market’s forward P/E would be nearly 20, not 13. If he’s right about earnings, it may be a while before a new bull can emerge.
Wall St set for frantic day after Fannie Mae and Freddie Mac bail-out
By James Quinn
07/09/2008
World markets are poised for a frantic day's trading after the US government nationalised troubled mortgage houses Fannie Mae and Freddie Mac in the biggest financial bail-out in history.
The unprecedented move, aimed in part at soothing global financial markets, will wipe out shareholders in the two companies and comes at an unknown cost to the American taxpayer.
Washington's decisive action is aimed at restoring confidence in the $12,000bn (£5,800bn) US mortgage market - whose failings trigg-ered the worldwide credit crisis - and most Wall Street experts were last night predicting a rally today in equity and bond prices.
Peter Kenny, of Knight Equity Markets, said: "It's probably a good move for the markets in the short term."
The plan was put in place by US Treasury Secretary Hank Paulson and Federal Housing Finance Agency (FHFA) head Jim Lockhart, with the support of Federal Reserve chairman Ben Bernanke.
Mr Paulson admitted that he could not quantify the cost to American taxpayers, saying: "The ultimate cost to the taxpayer will depend on the business results... going forward."
Under Mr Paulson's plan, the two companies, which control about half of the US mortgage market, will be placed under the FHFA through a mechanism known as a "conservatorship", with the Treasury buying each firm's senior preferred shares.
Mr Lockhart said the move was necessary because of the belief that the pair could not "continue to operate safely and soundly and fulfil their critical public mission without significant action to address our concerns".
The decision was partly fuelled by the knowledge that Fannie and Freddie's bonds are held by central banks and numerous other global investors, and the message that would have sent if either company had been allowed to fail.
In addition, the Treasury will, for the first time, buy mortgage-backed securities from banks in the open market, and will provide a lending facility to the companies through funds held at the Federal Reserve Bank of New York.
The effective nationalisation triggered the departure of Daniel Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at the slightly smaller Freddie Mac.
Mr Mudd will be replaced by Herb Allison, chairman of US pension fund giant TIAA-CREF, while US Bancorp chief executive David Moffett will take over from Mr Syron.
Mr Paulson said Fannie and Freddie are "critical to turning the corner on housing".
"FHFA and the Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible," Mr Paulson added.
Few Stand to Gain on This Bailout, and Many Lose
By ERIC DASH
September 7, 2008
Over the years, Fannie Mae and Freddie Mac showered riches on many winners: their executives, Wall Street bankers and Washington lobbyists. Now the foundering mortgage giants are leaving some losers in their wake, notably their shareholders, rank-and-file employees and, in the worst case, American taxpayers.
But even after the government seized the mortgage finance companies on Sunday and dismissed their chief executives, the companies’ outgoing leaders could see big paydays — a prospect that angers many investors, particularly because ordinary stockholders could be virtually wiped out.
Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be “without cause,” according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.
Richard F. Syron, the departing chief executive of Freddie Mac, could receive an exit package of at least $14.1 million, largely because of a clause added to his employment contract in mid-July as his company’s troubles deepened. He has taken home $17.1 million in pay and stock option gains since becoming chief executive in 2003.
Both executives stood to make millions more from restricted stock grants and options, but those awards are now worthless because of the plunge in the companies’ share prices. Even so, their past pay — and the idea that they might receive more — irks some investors.
“This is completely outrageous,” said Richard C. Ferlauto, the director of corporate governance and investment for the American Federation of State, County and Municipal Employees, a large pension fund. “It is really a slap in the face to shareholders and homeowners whose loans are at risk and taxpayers footing the bill for a bailout.”
Whether Mr. Mudd and Mr. Syron will collect their severance package is unclear. A spokeswoman for the Federal Housing Finance Agency, the companies’ primary regulator, declined to provide details about their exit packages. F.H.F.A. officials said the compensation of their successors, Herbert M. Allison Jr. and David M. Moffett, both longtime financial industry executives, would be “significantly lower” than that of the departing chief executives.
Fannie Mae and Freddie Mac have enriched their top executives for years. Mr. Mudd’s predecessor at Fannie Mae, Franklin D. Raines, took home more than $52 million while he was chief executive from 1999 to 2004, according to Equilar data.
Mr. Raines later agreed to forfeit several million dollars’ worth of stock and options to resolve personal claims over allegations that Fannie Mae had inflated its earnings to raise executive bonuses. Even though Fannie Mae was forced to restate its earnings, Mr. Raines walked away with at least $25 million in pension benefits, as well as stock options he did not cash in — many of which are now worthless.
Mr. Syron’s predecessor at Freddie Mac, Leland C. Brendsel, took home more than $28.4 million from 1993 to 2003, the only part of his pay package that was publicly disclosed during his 13-year tenure as chief executive.
The shareholders of Fannie Mae and Freddie Mac, including many employees, will not be so lucky. The companies’ share prices have plunged about 90 percent this year, wiping out about $70 billion of shareholder value. The shares are likely to be worth little or nothing under the government’s rescue plan.
As a result, Wall Street money managers and everyday investors alike stand to lose big. Bill Miller, the star mutual fund manager at Legg Mason, increased his bet on Freddie Mac even as the company’s shares plummeted this year. Last week, when Freddie Mac stock was trading at about $5, Legg Mason disclosed that it had bought an additional 30 million shares. Other value-oriented investors, including Rich Pzena, David Dreman and Martin Whitman, also placed big bets that the mortgage companies would recover. None of these money managers returned calls for comment.
“I am just shocked how they missed this, and why, when it became completely clear that the problem was snowballing, guys like Bill Miller doubled down,” said Douglas A. Kass, head of Seabreeze Partners and an outspoken short-seller.
For years, the shares of Fannie Mae, the larger of the two companies, have ranked among the most widely held stocks in America. Many ordinary investors believed that the company’s quasi-governmental status would insulate shareholders from big losses.
“People perceived they had government support of some sort,” said Byron Wien, the chief investment strategist at Pequot Capital. “The perception was they were more secure investments than they turned out to be.”
Members of the Fannie Mae and Freddie Mac rank-and-file were big shareholders, too. Stock and options could make up a fifth of employees’ total pay.
While those who bought the companies’ shares lost, short-sellers who bet against Fannie Mae and Freddie Mac won. So-called short interest in Fannie Mae and Freddie Mac stock soared in recent months as the companies’ troubles deepened.
Among the most vocal short-sellers betting against the companies is William A. Ackman, who runs a hedge fund called Pershing Square Capital. Mr. Ackman was among the earliest to warn of the credit crisis, and he is believed to have landed a windfall after shorting both companies, according to a person with direct knowledge of a recent investment letter.
Wall Street investment banks, meanwhile, are breathing a sigh of relief. Fannie Mae and Freddie Mac pay hefty fees to big Wall Street debt underwriters, and that is unlikely to change. Fannie Mae and Freddie Mac’s business was worth $1.5 billion in fees in 2007, according to a Sanford C. Bernstein report. Through the first six months of this year, that figure sank to $600 million.
Washington lobbyists, however, may be hurting. Over the last decade, Freddie Mac paid more than $94.8 million for lobbying services, in part to fend off attempts to tighten oversight, according to the Center for Responsive Politics; Fannie Mae spent about $79.5 million. The government plan will immediately eliminate that spending.
Some commercial banks and insurance companies that hold the companies’ preferred stock could suffer, too. Auditors may force those investors to mark down the value of the holdings. Sovereign Bancorp, a regional lender near Philadelphia, holds about $588 million of the securities, about 13 percent of its tangible capital, according to a research report by Keefe, Bruyette & Woods, a securities broker.
Midwest Banc Holdings, a community bank in Illinois, and Gateway Financial Holdings, which operates in Virginia and North Carolina, each have tens of millions of dollars of the preferred stock, representing more than one-third of their tangible capital, the report said. And federal banking regulators said in a joint statement that a “limited number” of smaller banks could need new financing.
The Treasury secretary, Henry M. Paulson Jr., urged those institutions to contact their regulator, which said it was “prepared to work with those institutions to develop capital-restoration plans” and other corrective actions.
Paulson Statement on U.S. Action on Fannie, Freddie: Text
Sept. 7 (Bloomberg) -- Following is the text of a statement by U.S. Treasury Secretary Henry Paulson on the U.S. government takeover of mortgage companies Fannie Mae and Freddie Mac:
Good morning. I'm joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA.
In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs - including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action.
Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers - both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.
Based on what we have learned about these institutions over the last four weeks - including what we learned about their capital requirements - and given the condition of financial markets today, I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.
The four steps we are announcing today are the result of detailed and thorough collaboration between FHFA, the U.S. Treasury, and the Federal Reserve.
We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection.
Throughout this process we have been in close communication with the GSEs themselves. I have also consulted with Members of Congress from both parties and I appreciate their support as FHFA, the Federal Reserve and the Treasury have moved to address this difficult issue.
Before I turn to Jim to discuss the action he is taking today, let me make clear that these two institutions are unique. They operate solely in the mortgage market and are therefore more exposed than other financial institutions to the housing correction. Their statutory capital requirements are thin and poorly defined as compared to other institutions. Nothing about our actions today in any way reflects a changed view of the housing correction or of the strength of other U.S. financial institutions.
***
I support the Director's decision as necessary and appropriate and had advised him that conservatorship was the only form in which I would commit taxpayer money to the GSEs.
I appreciate the productive cooperation we have received from the boards and the management of both GSEs. I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction. GSE managements and their Boards are responsible for neither. New CEOs supported by new non-executive Chairmen have taken over management of the enterprises, and we hope and expect that the vast majority of key professionals will remain in their jobs. I am particularly pleased that the departing CEOs, Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition.
I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing. Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.
To promote stability in the secondary mortgage market and lower the cost of funding, the GSEs will modestly increase their MBS portfolios through the end of 2009. Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size.
Treasury has taken three additional steps to complement FHFA's decision to place both enterprises in conservatorship. First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth. These agreements support market stability by providing additional security and clarity to GSE debt holders - senior and subordinated - and support mortgage availability by providing additional confidence to investors in GSE mortgage backed securities. This commitment will eliminate any mandatory triggering of receivership and will ensure that the conserved entities have the ability to fulfill their financial obligations. It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set. With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.
These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS. Our nation has tolerated these ambiguities for too long, and as a result GSE debt and MBS are held by central banks and investors throughout the United States and around the world who believe them to be virtually risk-free. Because the U.S. Government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and MBS.
Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.
Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.
The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below "well capitalized." The banking agencies are prepared to work with the affected institutions to develop capital restoration plans consistent with the capital regulations.
Preferred stock investors should recognize that the GSEs are unlike any other financial institutions and consequently GSE preferred stocks are not a good proxy for financial institution preferred stock more broadly. By stabilizing the GSEs so they can better perform their mission, today's action should accelerate stabilization in the housing market, ultimately benefiting financial institutions. The broader market for preferred stock issuance should continue to remain available for well-capitalized institutions.
The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Given the combination of actions we are taking, including the Preferred Share Purchase Agreements, we expect the GSEs to be in a stronger position to fund their regular business activities in the capital markets. This facility is intended to serve as an ultimate liquidity backstop, in essence, implementing the temporary liquidity backstop authority granted by Congress in July, and will be available until those authorities expire in December 2009.
Finally, to further support the availability of mortgage financing for millions of Americans, Treasury is initiating a temporary program to purchase GSE MBS. During this ongoing housing correction, the GSE portfolios have been constrained, both by their own capital situation and by regulatory efforts to address systemic risk. As the GSEs have grappled with their difficulties, we've seen mortgage rate spreads to Treasuries widen, making mortgages less affordable for homebuyers. While the GSEs are expected to moderately increase the size of their portfolios over the next 15 months through prudent mortgage purchases, complementary government efforts can aid mortgage affordability. Treasury will begin this new program later this month, investing in new GSE MBS. Additional purchases will be made as deemed appropriate. Given that Treasury can hold these securities to maturity, the spreads between Treasury issuances and GSE MBS indicate that there is no reason to expect taxpayer losses from this program, and, in fact, it could produce gains. This program will also expire with the Treasury's temporary authorities in December 2009.
Together, this four part program is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition of the GSEs. Because the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking. The Preferred Stock Purchase Agreements minimize current cash outlays, and give taxpayers a large stake in the future value of these entities. In the end, the ultimate cost to the taxpayer will depend on the business results of the GSEs going forward. To that end, the steps we have taken to support the GSE debt and to support the mortgage market will together improve the housing market, the US economy and the GSEs' business outlook.
Through the four actions we have taken today, FHFA and Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible.
And let me make clear what today's actions mean for Americans and their families. Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today. While we expect these four steps to provide greater stability and certainty to market participants and provide long-term clarity to investors in GSE debt and MBS securities, our collective work is not complete. At the end of next year, the Treasury temporary authorities will expire, the GSE portfolios will begin to gradually run off, and the GSEs will begin to pay the government a fee to compensate taxpayers for the on-going support provided by the Preferred Stock Purchase Agreements. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a "time out" where we have stabilized the GSEs while we decide their future role and structure.
Because the GSEs are Congressionally-chartered, only Congress can address the inherent conflict of attempting to serve both shareholders and a public mission. The new Congress and the next Administration must decide what role government in general, and these entities in particular, should play in the housing market. There is a consensus today that these enterprises pose a systemic risk and they cannot continue in their current form. Government support needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes. And policymakers must address the issue of systemic risk. I recognize that there are strong differences of opinion over the role of government in supporting housing, but under any course policymakers choose, there are ways to structure these entities in order to address market stability in the transition and limit systemic risk and conflict of purposes for the long-term. We will make a grave error if we don't use this time out to permanently address the structural issues presented by the GSEs.
In the weeks to come, I will describe my views on long term reform. I look forward to engaging in that timely and necessary debate.
Unemployment rate unexpectedly soars to 6.1%
Nonfarm payrolls fall by 84,000 in August, more than expected
By Greg Robb
Sept. 5, 2008
WASHINGTON (MarketWatch) -- The nation's employment report, considered a pivotal measure of economic activity, delivered startling bad news about the economic outlook on Friday, renewing fears of a recession and in the blink of an eye changing the discussion from interest rates possibly moving higher to the potential for further easing in rates.
The shocking news came in the form of the unemployment rate for August, which soared to 6.1%, the highest in nearly five years. The rate has steadily climbed this year from a cycle low of 4.4% and now sits just below the peak of 6.3% seen during the last recession.
One economist said his forecast of a 7% unemployment rate before the economy manages a recovery might be too low.
The report had a major impact on financial markets. The dollar weakened in foreign-exchange trading, while stocks dropped sharply after the data were released but showed signs of a rebound by midday.
Nonfarm payrolls decreased by 84,000, the Labor Department reported, more than the 75,000 drop expected by economists surveyed by MarketWatch.
This marked the eight straight monthly drop in payrolls.
"It looks pretty dismal. The theme [is] of a U.S. economy sliding ever so surely into recession," said Michael Gregory, senior economist at BMO Capital Markets in Toronto.
In the months ahead, job losses of more than 100,000 will be much more commonplace, he said.
The factory sector, especially the auto industry, shed jobs in August. Employment services, considered a bellwether of future labor-market trends, also had sharp losses.
The weak labor market is sure to rekindle fears of an incipient recession among investors and consumers alike. Federal Reserve policymakers are watching closely.
Economists have been warning that the economy appeared to be stalling, but Wall Street was dazzled late last month by the strong 3.3% growth reported in the government's first revision of its estimate for gross domestic product during the April-June quarter. See full story.
Troubling signs
Other aspects of Friday's jobs report underscored weakening conditions in the labor market.
Payroll losses in the previous two months were 58,000 larger than previously estimated.
Aggregate hours fell 0.1% in August, the fifth straight monthly decline. Hours worked in the factory sector plunged 0.9%.
The jobless rate rose for a clear-cut reason: People lost jobs.
According to a separate survey of households, employment fell to 145.6 million, off 342,000. Unemployment rose by 592,000, to 9.4 million, and the labor force fell by 8,000 in August.
Average hourly earnings increased a larger-than-expected 7 cents, or 0.4%, bringing the year-over-year gain to 3.6%. Higher wages could fuel inflation, Fed officials fear, but so far wages have remained tame.
The weak report should postpone any Fed-engineered rate hike. Although some Fed officials have been agitating for a tightening sooner rather than later, most analysts believe it will be difficult for the Fed to justify raising rates in face of labor market weakness.
"All thoughts of a rate rise this year led by hawkish members of the Fed should now vanish," wrote the economic team at Action Economics.
"We may start hearing that the Fed may have to ease," BMO Capital Markets' Gregory said.
Job losses across the private sector
There were job losses across the private sector, as only government and education and health care added workers.
Factory payroll losses accelerated, dropping by 61,000, their eighth straight monthly decline.
Construction jobs fell by 8,000 in August.
Both of these sectors haven't experienced job gains in more than a year.
According to the payroll survey of business establishments, private-sector payrolls fell by 67,000, twice the 33,000 estimated by the ADP national employment report Wednesday.
Service-producing industries lost 27,000 jobs, with losses seen in retail, transportation and financial services. Temporary-help jobs fell by 37,000.
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