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Payrolls Miss Forecasts, But Taper Expectations Are Left Intact

by Karl Schamotta | October 8, 2021

Hiring remained weak in the United States last month even as schools reopened, federal emergency benefits expired, and the Delta coronavirus variant lost momentum. According to the Bureau of Labor Statistics, 194,000 jobs were created in September, down from a revised 366,000 in August. The median market estimate ahead of the release was set closer to the 500,000 mark.

Private payrolls grew b y 317,000: Employment in the leisure and hospitality sector recovered after flatlining in August, with 74,000 positions added in the month. Factories added another 26,000 workers. But government subtracted -123,000 – suggesting that seasonal adjustments in the educational worker category may have depressed the headline number.

Tapering remains on track: The report is unlikely to derail the Federal Reserve’s plan to begin reducing asset purchases – last month, Chairman Powell told reporters that the central bank’s jobs target had been “all but met”, making a “knockout, great, super strong employment report” unnecessary in September.

The jobless rate moved lower: Headline unemployment dropped to 4.8 percent from 5.2 percent in August. A broader measure that includes discouraged and underemployed workers – the U-6 – ground down from 8.8 percent to 8.5 percent.

Earnings climbed: Average hourly earnings rose 0.6 percent month-over-month, suggesting that the competition for workers remained hot even as supplementary federal benefits programs elapsed in early September.

The dollar ticked lower: Two-year Treasury yields dropped sharply in the moments after the release, but are climbing back as market participants dig deeper into the release – and revert to previously-held assumptions on the Federal Reserve’s tightening trajectory.

In contrast, Canada created 157,000 new jobs in September, essentially eliminating the gap with pre-pandemic employment levels far more quickly than anticipated: Markets were expecting Statistics Canada to report a number closer to 65,000.

Jobless rolls shrank further: The unemployment rate dropped for a fourth consecutive month, falling to 6.9 percent, perfectly in line with the consensus forecast.

Participation leapt higher: The labour force participation rate (normally extremely stable) jumped 0.4 percentage points to 65.5 percent as the school year started, allowing parents to reenter the workforce.

The loonie moved higher: Driven by a convergence in employment levels, the Canadian dollar exchange rate broke through a key psychological barrier, rising 40 basis points from pre-release levels. Expectations for an additional reduction in asset purchases at the Bank of Canada’s November meeting have been bolstered.

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