The US September jobs report beat expectations today, with non-farm payrolls rising by 254,000 compared to expectations of 140,000. The unemployment rate decreased slightly to 4.1%, approaching 4.0%, and the participation rate stabilized at 62.7%.
Private sector payrolls rose by 223,000, while average hourly earnings rose 0.4% month-over-month and 4.0% year-over-year, both above expectations. Jobs in the manufacturing sector fell by 7,000, which was an improvement compared to previous data.
The household survey showed an increase of 430,000 jobs, with a notable increase in full-time employment (+631,000) but a decrease in part-time employment (-201,000). Strong data dampened expectations of a rate cut by the Federal Reserve at its November meeting, pushing the US dollar higher, but implying a firmer US economy.
With the Fed feeling that inflation is under control, if job gains meet job needs, there is a possibility that inflation will not be inflationary and thus may keep the Fed on the recalibration path.
The Fed’s Goolsbee was the only Fed official to comment on the report, calling it “breakthrough,” and also highlighting the end of the port strike as additional positive news.
However, he cautioned against reacting too strongly to a single data point, stressing that more such reports would increase confidence in achieving full employment. He noted that strong job numbers are likely to reflect strong growth in gross domestic product.
While the Fed is still setting the neutral interest rate, it has indicated that it will likely be above zero and could fall within a range of 2.5-3.5%, although there is plenty of time to find out. Goolsby stressed the importance of maintaining current economic conditions, and while productivity growth could lead to a higher neutral rate, the economy will need to get to grips with it.
He also acknowledged that general indicators show the labor market is slowing, but rejected the idea of a “soft landing” as the economy continues to move forward.
The Fed’s ideal scenario is to see an unemployment rate between 4-4.5% and inflation around 2%, which it believes will achieve the Fed’s goals. With more data available before the Fed’s next meeting, Goolsbee warned that external shocks could still derail efforts toward a soft landing.
However, now he’s back to the happy/giddy times. US CPI data will be released next week with headline (0.1%) and core (0.2%) expected to be on the weak side again, although the year-on-year core index remains high at 3.2%. The annual rate is expected to fall to 2.3% from 2.5%.
Today’s news sent stocks higher with the Dow Jones Industrial Average closing at a new record high. A snapshot of the closing levels is shown:
- The Dow Jones Industrial Average rose 341.16 points, or 0.81%, to 42,352.75 points.
- The Standard & Poor’s index rose 51.13 points, or 0.90%, to 5,751.07 points.
- The Nasdaq index rose 219.37 points, or 1.22%, to 18,137.85 points.
The Russell 2000 small-cap index rose 32.65 points, or 1.50%, to 2,212.79.
For the trading week, gains were modest with the Nasdaq up 0.10%, the Dow Jones up 0.09% and the S&P 500 rose 0.22%.
In the US debt market, yields rose sharply with:
- Two-year yield: 3.928%, +21.4 basis points
- 5-year yield 3.807%, +17.4 basis points
- The 10-year yield is 3.967%, +11.7 basis points
- The 30-year yield is 4.249%, +.0 basis points
For the trading week:
- Year 2 rose 36.5 basis points
- 5-year rose 30.0 basis points
- The 10-year rose 21.3 basis points
- The 30-year rose 14.5 basis points
Mortgage rates rise by 6.5%
Looking at the strongest and weakest major currencies, the British pound and the US dollar are the strongest while the Japanese yen is the weakest.
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