Strong un­em­ploy­ment, pay­rolls and wages cre­ates per­fect storm for mar­kets and Fed

By Jon C. Ogg

Financial Mirror (Cyprus) - - WORLD -

Fri­day’s un­em­ploy­ment and pay­rolls re­port from the U.S. De­part­ment of La­bor was strong, per­haps strong enough that it still of­fers plenty of cover for Jerome Pow­ell and his fel­low Fed-heads to keep rais­ing in­ter­est rates.

The Oc­to­ber pay­rolls re­port was also the last ma­jor jobs num­ber ahead of Tues­day’s mid-term elec­tions. Ahead of the re­port, Wed­nes­day’s ADP monthly pay­rolls re­port came in stronger than ex­pected at 227,000 new pay­rolls added in Oc­to­ber. CNBC had pub­lished a con­sen­sus a of just 189,000.

Fri­day’s re­port showed that the of­fi­cial un­em­ploy­ment rate was static at only 3.7%. This met the pub­lished con­sen­sus es­ti­mates from most sources. There also ap­pears to have been very lit­tle di­rect im­pact from hur­ri­cane re­lated weak­ness in Oc­to­ber and the fol­low-on storm im­pacts from Septem­ber.

Non­farm pay­rolls rose by a sharp 250,000 in Oc­to­ber in Fri­day’s BLS re­port. Dow Jones was call­ing for a non-farm pay­rolls gain of 188,000 and IBD’s Econ­o­day con­sen­sus es­ti­mate was 190,000 for non-farm pay­rolls.

What stood out in the pay­rolls gains was that only 4,000 of these were gov­ern­ment jobs. Some 246,000 were from the pri­vate sec­tor.

Septem­ber’s non­farm pay­roll gains were re­vised to 118,000 ver­sus the pre­lim­i­nary re­port of 134,000 — while Au­gust was re­vised to 286,000 from the last es­ti­mate of 270,000.

The ex­pected gain in av­er­age hourly earn­ings is ex­pected to be 0.2%, ver­sus 0.3% in Septem­ber. That is ex­actly what came in, a 0.2% gain to $27.30 per hour. The 12-month gain in av­er­age hourly wages rose to 3.1% in Oc­to­ber ver­sus 2.8% in Septem­ber. This is the big­gest wage jump in nearly a decade.

The stock mar­ket was prob­a­bly hop­ing for a num­ber of 150,000 or less, as fu­tures have backed off of their pre-open highs.

That said, Dow fu­tures were up over 200 points af­ter this re­lease and S&P fu­tures were up al­most 18 points. A smaller gain would have still been pos­i­tive for the econ­omy, but it would have sent the mes­sage to the mar­kets that there was less over­heat­ing that will keep Mr. Pow­ell’s rate hike am­bi­tions po­ten­tially muted.

An­other fac­tor is the la­bor par­tic­i­pa­tion rate, which was 62.9% in Oc­to­ber ver­sus 62.7% in Septem­ber. IBD’s Econ­o­day con­sen­sus was 62.8% for Oc­to­ber.

Re­gard­less of how you might look at Oc­to­ber’s Em­ploy­ment Sit­u­a­tion re­port, the num­bers were strong. Strong enough that the Fed won’t have to apol­o­giSe for any views that it can keep rais­ing in­ter­est rates for the time be­ing. (Source: 24/7 Wall

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