I am firm believer in the comment to never over react to one single data release. I will make an exception. The chances of a rate hike by the Fed this year just fell exponentially given September’s labor report.
Payroll employment rose by a much weaker than expected 142,000 versus the consensus view of a 200,000 increase. August was revised lower to 136,000 from 173,000. Private sector jobs only increased by 118,000 in September and 100,000 in August, both either missing the mark or revised lower.
It gets uglier. The household survey measure of employment declined by 236,000. The only reason the unemployment rate remained unchanged at 5.1% is the labor force contracted by an even bigger 350,000. As a result the participation rate fell to a near 40 year low of 62.4% from 62.6%.
That is not the end of the bad news. Wages were unchanged and the average work week declined.
So is the US economy facing serious difficulty? Outside of manufacturing which has been killed by the stronger dollar, most other data points look positive. Initial claims are still below 300,000, job openings at a record, consumer confidence at the second highest level since 2007. Some have argued the slowdown in job creation occurred in the non-cyclical sectors such as education and health.
The FRB has stated many times change in monetary policy will be dependent upon the data, with jobs being a if not the primary determinate. This mono variable was perhaps tweaked three weeks ago with the inclusion of foreign markets into its formal deliberations.
After the data was released, equities sold off considerably only to rebound sharply into positive territory the result of a declining dollar that may support multinational profits, energy/commodities, and the belief that monetary policy may now not be altered until 2016.
Bloomberg reports the S & P 500 rebound from it morning 1.6% slide to its closing gain of 1.4% was the biggest since October 2011. I cynically ask how much of the volume and volatility is the result of HFT?
What will happen this week? Third quarter earnings season commences Thursday. How has the dollar and global woes impacted profits for the multinationals?
Also released is the ISM Non-manufacturing index which represents about 70% of the economy. Will this tier I indicator maintain its strength which is hovering its highest levels since 2005? Also released is the trade gap, inventories and Minutes from the September FOMC meeting.
Last night the foreign markets were up. London was up 2.18%, Paris up 3.44% and Frankfurt up 2.38%. China was up 0.48%, Japan up 1.58% Hang Sang up 1.62%.
The Dow should open moderately higher led by oil and commodities on speculation the Fed will delay raising interest rates. Is bad now good? The 10-year is down 4/32 to yield 2.01%.
DID POOR JOBS DATA CHANGE THE MONETARY POLICY TIME TABLE?
Ken Engelke
Chief Economic Strategist Managing Director
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