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I have opined several times growth may be stronger than most expect, further stating wage pressures may begin to surface. I have also written a gazillion times about today’s frightening velocity of change, recently referencing Fed policy during the summer 2008 and making a possible comparison to today.
Friday the BLS reported October’s jobs data. In my view, in every dimension it was strong, perhaps paving the way for a change in monetary policy at the December meeting. To remind all, September’s jobs report was universally weak with most, including me, believing a change in monetary policy will not occur until March 2016 if not later.
Briefly recapping the data, non-farm and private sector payrolls rose by 271k and 268k, respectively, the largest gain for 2015. Both data points were almost 100,000 higher than expected. Wages rose by 0.4% versus the 0.2% expected gain. The workforce increased by 320k versus the expected amount of 187.5, thus leaving the unemployment rate at a seven year low of 5.0%.
The broader U6 measure of unemployment fell to 9.8% from 10.0% as the share of involuntary part time workers dropped to a seven year low. The labor participation rate (LPR) also remained unchanged at a multi decade low of 62.4%.
In my view the increase in average hourly earnings is one of the most significant statistics. The annual growth rate is now 2.5%, which is relatively modest, but is at a six year high.
If November’s employment report is similar to October’s, especially relating to wages, the Fed will change monetary policy in December.
In my view there are two major variables missing in the current recovery. The first is bank lending which began to accelerate in January/February to over 7.5%. Typically bank lending leads job growth by 3-4 months. The second major variable is job creation. Has the trend turned?
Markets were mixed. The dollar rallied which caused oil and other commodities to fall, which in itself is oxymoronic. Greater growth/inflationary pressures indicate greater demand for crude. I will argue oil fell because of HFT. Treasuries also sold off and the two year is now trading at the highest level since May 2010. The 10-year is now at the highest yield since July.
Is the data a narrative changer? Perhaps.
What will happen this week? The economic calendar has several inflation and sales data points as well inventories and sentiment surveys. Moreover Wednesday is Veterans Day and banks/the bond market is closed.
Last night the foreign markets were mixed. London was down 0.12%, Paris down 0.56% and Frankfurt down 0.42%. China was up 1.24%, Japan up 1.96% and Hang Sang down 0.61%
The Dow should open moderately lower, digesting the jobs report and ahead of this week’s modestly crowded economic calendar comprised of retail sales and inflation data. The 10-year is off 3/32 to yield 2.34%.

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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.