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In My View the Employment Report was Relatively Strong in Many Dimensions.

In my view the employment report was relatively strong in many dimensions.  Both private sector and non-farm payrolls were considerably higher than expected and so were the revisions from August.  The jobless rate fell to 5.9%, the lowest rate since July 2008’s level of 6.1%.  Average hourly earnings and hours worked also exceeded expectations both of which are precursors for future job gains.

On the negative side, the labor participation rate (LPR) decreased to 62.7% from 62.8% the month before, the lowest since February 1978 a statistic in my view is a reason why a vast majority of society thinks the country is headed in the wrong direction.

I think this data does little to change monetary policy assumptions.  The job and wage growth are strong positives but the LPR is a strong negative thus cancelling each other out as it regards to monetary policy.

Regarding possible electoral implications, as I wrote Friday I think this data does little to boost the President’s claims about his economic policies and in fact may be the inverse given the low LPR.  Any declarative statements might be viewed as the President’s party is out of touch with the electorate.

Third quarter earnings season commences Wednesday.  There has been little narrative leading into the season given the intense attention focused on Ebola, ISIL, the Ukraine, etc.  Most are expecting results to again exceed expectations for the gazillionith quarter.

Similar to the second quarter, I think many will focus upon revenue gains and how such gains relate back to third quarter growth assumptions and momentum leading into the fourth quarter.

Moreover many will be listening about the impact of the rising dollar.  According to CNBC it has risen in value for a record 12 consecutive weeks.

In my view, any earning gains need to come from sales growth as productivity gains will be difficult given the efficiency and leanness of corporate America.

Returning back to the jobs data, equities rebounded sharply as the prices were fully discounted for most scenarios.  The rally was broad based as all major indices including the hapless Russell 2000 posting 1% plus gains.

This is a relatively slow data week with perhaps Wednesday’s release of the Minutes from the September FOMC meeting as the marquee event.  Statistics released include wholes ale inventories, import prices and weekly jobless claims.

Last night the foreign markets were up.  London was  up 0.45%, Paris up 0.32% and Frankfurt up 0.98%.  Japan was up 1.16% and Hang Sang up 1.09%.

The Dow should open moderately higher on third quarter earning optimism.   The 10-year is unchanged at 2.43%.


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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.