The September employment report will be widely discussed in the media as being the stock market's focal point today. That is true, yet we would add that the stock market's behavior will be the real focal point. After all, the S&P 500 logged its sixth straight record close on Thursday, which is something that hasn't been seen in 20 years.
Naturally, then, everyone's attention will be on whether that streak continues or whether that six-pack invites a little hangover today.
At the moment, the futures trade is pointing to a modestly lower open. The S&P futures are down six points, the Nasdaq 100 futures are down 23 points, and the Dow Jones Industrial Average futures are down 45 points, placing them all below fair value.
That's weaker than they were prior to the release of the employment report, which was "noisy" as expected due to the effects of the hurricanes.
That noise resonated in the headline payroll numbers, yet the most important takeaway from the report is that wage growth picked up nicely in September and should solidify the case for another rate hike in December.
The notable headlines from the Employment Situation Report are as follows:
- September nonfarm payrolls decreased by 33,000 (Briefing.com consensus 75,000). Over the past three months, job gains have averaged 91,000 per month.
- August nonfarm payrolls revised to 169,000 from 156,000
- July nonfarm payrolls revised to 138,000 from 189,000
- September private sector payrolls decreased by 40,000 (Briefing.com consensus 98,000)
- August private sector payrolls revised to 164,000 from 165,000
- July private sector payrolls revised to 133,000 from 202,000
- September unemployment rate was 4.2% (Briefing.com consensus 4.4%) versus 4.4% in August
- Persons unemployed for 27 weeks or more accounted for 25.5% of the unemployed versus 24.7% in August
- The U6 unemployment rate, which accounts for both unemployed and underemployed workers, dropped to 8.3% from 8.6% in August
- September average hourly earnings increased 0.5% (Briefing.com consensus 0.2%) after increasing 0.2% in August
- Over the last 12 months, average hourly earnings have risen 2.9%, which is the highest growth rate since the financial crisis
- The average workweek in September was 34.4 hours (Briefing.com consensus 34.3), versus 34.4 hours in August
- September manufacturing workweek was unchanged at 40.7 hours
- Factory overtime was unchanged at 3.3 hours
- The labor force participation rate was 63.1% in September versus 62.9% in August
It was fairly easy to discern the hurricane impact on the labor market in September, as employment in food services and drinking places declined by 105,000 versus an average of 24,000 jobs added per month over the prior 12 months.
Just sticking to that average, then, would account for a 129,000 swing in September nonfarm payrolls, which is to say it is reasonable to expect a nice rebound in October as food services and drinking places get back to business as usual.
It is said that seeing is believing, but in this case, one can't believe what they see. It is an aberration on the payrolls front.
The Treasury market isn't believing it. The 2-yr note yield is up three basis points to 1.52% while the 10-yr note yield is up four basis points to 2.39% as market participants there are believing what they are seeing with wage growth and the implications for the economy, inflation, and monetary policy.