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Market Wire:
US Employment Engine Still Running Smoothly

Matt Eidinger October 4, 2019

Economic data this morning indicated employment growth in the US cooled during September. According to data from the Bureau of Labor Statistics (BLS) the US economy added just 136,000 new jobs in September – disappointing market participants looking for a reading closer to 145,000.

But the US job creation machine is still running smoothly overall; figures for June were revised upwards to 168,000, while the three-month average was up 1,000 to 157,000.

Under the hood, employment growth was strongest in healthcare as well as professional and business services. Private sector payrolls, which registered 122,000 for July and August – fell slightly to 114,000. Wages fell 1 cent during September but rose 2.89% on a year-over-year basis. However, this disappointed market expectations, which were eyeing yearly wage growth above 3%. 

The unemployment rate fell to 3.5% – the lowest level since 1968. Similarly, the underemployment rate, which includes workers who are under-utilizing their skills or those who are employed in part time positions for economic reasons, fell to 6.9%.

Today’s employment report comes amidst growing fears that a global slowdown in manufacturing is underway and a recession is around the corner. In the first place, ISM manufacturing registered a contractionary reading for the first time in ten years on Tuesday.

Although yesterday’s services component came in above the key 50-point mark, the reading was still well below market expectations and has prompted the fear that weakness in the business community could spread to the consumer side of the economy and threaten economic growth. Correspondingly, today’s payrolls indicated a loss of 2,000 manufacturing jobs – the first since March of this year.

These concerns have prompted the chances of a third interest rate cut from the US Federal Reserve to rise from just under 50% last week to 87.1% right before today’s non-farm payrolls. Immediately after the report, the overnight indexed swap rates indicated the chances of an October cut had fallen to 78.6%. 

The Euro fell a modest 10 pips against the greenback immediately after the labor data hit the wire. Similarly, the safe-haven Japanese Yen reversed its week-long trend of strengthening against the big dollar – falling a meager 25 pips against the US dollar around 8:30 am. The trade-weighted dollar index moved up 0.1% to 98.75, remaining near some of the highest levels seen in the past three years.

Today’s non-farm payrolls should be interpreted by the Fed as a cautionary message; the threat to the American economy from the ongoing trade conflict is based in fact, not merely presidential tweets.

Employment growth remains healthy but has slowed down notably. Furthermore, earnings growth has dipped beneath 3% for the first time this year – representing a threat to the American economy’s main driver – consumer spending.

When the FOMC meets next month, it would be wise to get ahead of the curve and act preemptively to cut interest rates as a sign that it is ready and able to support the American consumer if the trade war contagion continues to spread.

Matthew Eidinger
Fintech Specialist, Dealing Operations

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