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US September 2019 Labour report: "Mixed but on balance better than expected report; not a Fed game changer"

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Ostwald, Marc

14:26 (5 minutes ago)

to Marc

US September 2019 Labour report: "Mixed but on balance better than expected report; not a Fed game changer"

a) Payrolls / Establishment survey - Headline Payrolls at 136K with a net 45K upward revision to August/July were slightly better than forecast, though 28K of the revision was Govt, with Private Payrolls posting a modest miss at 114K, but this follows revised 122K readings for July (-9K) & August (+26K), i.e. a very steady trend, though clearly off the pace of H1 2019 & all of 2018. In simple terms, a) this is above the breakeven rate of 80-100K, b) given the disincentives for corporates to hire and invest due to the climate of anxiety created by Trump's trade policies, this is actually not bad. In the detail, Retail job shedding continues to be the most notable trend (but clearly structural), with a solid pace of job creation in Professional/business (+34K) & Leisure/hospitality (+21K), while Manufacturing Payrolls are showing an essentially flat trend.

b) Unemployment Rate / Household survey - A new 50-yr low of 3.5% (best since June 1969) and a new cyclical low for the Underemployment Rate at 6.9% (best since Dec 2000) are headline worthy, and more encouraging than Payrolls, given that this was paced by a 391K rise in Employment, a 275K drop in Unemployment and a marginal +117K in the Workforce estimate. Both establishment and household surveys suggest that the ISM surveys' weakness was perhaps exaggerated by the narrative of negativity, above all from Wall Street.

c) Average Hourly Earnings / Weekly Hours - But for the 'eterna-bears' who stalk the commentary airwaves, there is at least the opportunity to jump all over the much weaker than expected Average Hourly Earnings Flat m/m 2.9% y/y vs. expected 0.3%/3.2%, with Education (-0.2% m/m), Information (-1.2% after Aug +1.1%) and Utilities (-0.4% vs Aug +1.0%) accounting for most of the -0.1% m/m for Services. Average Weekly Hours were up 0.1% m/m following an outsized 0.5% m/m in August, with Manufacturing Hours flat m/m vs prior +0.2% - again this does not point to the sort of sharp slowdown implied by the ISM surveys.

d) Market reaction - Best described as modest, 10-yr yields up 1.5 bps, with some curve flattening, while the probability of an October Fed rate cut has dipped to 74% from 85% this morning, but still way above Monday's 40%. Markets can now wait for this afternoon's raft of Fed speakers, including Powell, who will doubtless echo Clarida yesterday, i.e. that the Fed will take 'appropriate' action to ensure the expansion continues, and assess on a meeting by meeting basis. Attention then turns to the US/China trade talks next week, and the next steps in the US/EU trade tensions. Volatility remains the watchword for Q4.

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MARC OSTWALD
Global Strategist & Chief Economist

ADM Investor Services International Limited