So here we are again, Non-Farm Payrolls day, that all important economic release regarding the trajectory of the US economy. A few decades ago it was the US current account and trade balance which was the “big release” but since NFP has been the dominant series. Maybe this is because it is the first indicator of activity for the previous month or indeed that the week following NFP there is almost a vacuum of top tier releases putting NFP as the dominant series to set the tone for the coming weeks.
Of course it is also a key indicator for the FOMC with the employment situation one of their key targets and with only two meetings left this year on October 28th and then December 16th the “will they won’t they” discussions regarding “lift-off” will again take centre stage. It is worth noting that August and September payrolls have been revised higher in 12 of the previous 14 years which is thought to be due to the timing of the return to school after the summer break.
So on to today’s release. Drum roll. September NFP was released at +142k against calls of +201k for August, against the form book, revised down to +136k from +173k previously, and the two month revision of previous releases at -59k. So the headline numbers were very much lower than expected.
The unemployment rate was steady at 5.1% but the labour force participation fell to 62.4% from 62.6 and is the lowest rate since October 1977, and so a very weak report.
The markets were keen to discover any signs of wage inflation in the report that could spur Fed activity, however, the average hourly earnings month on month came in at 0.0%, against 0.2% expected, putting the year on year rate at 2.2% again lower than the calls of 2.4%. Average hourly earnings have been in a narrow range around 2% since June 2009 when this current expansion began.
The average weekly hours also came in at 34.5, weaker than the 34.6 expected and announced for the August release.
It is hard to find any positive points in this report, although Americans working part time who would prefer a full-time position fell to 6.04 million, the fewest since August 2008, a very small point for economic bulls to pick up on.
US Treasury yields are falling across the curve; ten year yields currently -9.8 basis points to 1.94% as the inflationary outlook backs up the Fed's last meeting and their decision to stay on hold given the somewhat lacklustre economic outlook.
Could this be the beginning of a further slowdown, could we see another round of QE before “Lift-off”, as with the Fed, decisions will be data dependent?