Will disappointing job growth affect the Fed decision to taper

Stocks just about broke even on Friday after a wild ride after new hires for the month of September missed analysts’ expectations by a wide margin.  The number appeared bad on the surface, but there were some hidden positives in Friday’s release.

N O T E W O R T H Y

Work-out.  What is the real number we should be thinking about when trying to assess how far the US economy has come in its recovery from the pandemic? Five million, or 5,000,000, if you prefer.  That is roughly the amount of folks who are still unemployed after losing their jobs to the COVID outbreak.  Apparently, for some reason, getting those workers back on the job is not so easy, as we learned on Friday, when September’s monthly jobs report from the Government showed that the US added 194k jobs for the month.  Economists were expecting 500k, with some expecting as much as 700k.  So, yes, that was a big and disappointing miss.  The Unemployment Rate for the month ticked down to 4.8% from 5.2%, which looks good on its surface until we notice that the Labor Force Participation Rate declined from August to September.  That means that there were less eligible workers seeking work, essentially taking themselves out of the workforce. When less people are seeking work, the headline Unemployment Rate moves downgiving the illusion of strength.  Analysts speculate that the recent Delta surge is the cause of the slowdown. Interestingly, the weak state of the labor market is not the result of companies’ not hiring, as they might in a tough economic environment.  Last month the Bureau of Labor Statistics announced 10.934 million job vacancies in the US.  That is enough to rehire the 5 million pandemic-related losses twice over… and then some.  We will get a fresh read of those vacancies with the JOLTS release tomorrow morning.

Friday’s release did have some bright spots beyond the disappointing headline numbers. First of all there was a sizable revision of last month’s Nonfarm Payrolls number to 366k from 235k indicating that there were more new hires in August than initially reported.  Further, the gains in September were largely in the areas which are in need of the most improvement.  Retail Trade added 56.1k new jobs after shrinking in the prior month.  Air Transportation added 9.7k jobs while Transit and Ground Passenger Transportation added 5.2k workers.  Warehousing and Storage continued its growth, adding another 15.6k jobs. Professional and Technical Services experienced a gain of 55.5k new workers.  The aggregate many of us are watching closely is Leisure and Hospitality, which added 74k workers after reporting 38k in the prior month.  The Government category actually lost -123k jobs with the sub-category of Local Government Education losing -144k for the month.  Many companies are reporting increases in labor costs as they raise wages to lure ambivalent workers back to the workplace, so it is not wages that are keeping unemployment levels high.  Many economists are perplexed by the week labor market recovery. Some blame lucrative emergency unemployment benefits and virtual/home schooling.  With many schools returning to in-person learning and most extended benefits expired, many of those reticent workers are expected to ramp up their re-employment efforts in the months ahead.  

THE MARKETS

Stock traders had a wild day on Friday.  Weaker employment figures were initially met with buying as traders hoped that the Fed might delay its taper.  Bond yields initially fell making way for stocks to rise, but as the session progressed, bond yields began to rise causing stocks to give up their early session gains for a marginally lower close.  The S&P500 fell by -0.19%, the Dow Jones Industrial Average slipped by -0.03%, the growth-heavy Nasdaq Composite Index dropped by – 0.51%, and the Russell 2000 Index gave up -0.76%.  Bonds fell and 10-year Treasury yields gained +3 basis points to 1.61%.  Cryptos rose by +0.38% and Bitcoin slipped by -0.35%.  The S&P500 ESG Index traded off by -0.14%.

NXT UP

– Chicago Fed President Charles Evans will speak today.  Fed watchers will be listening closely to the weeks’ Fed speakers, hoping to get their thoughts on last Friday’s jobs miss.

– Today is a Federal Bank holiday and the cash Treasury market is closed.

– No economic releases today but later in the week we will get JOLTS Job Openings, CPI, PPI, FOMC Meeting Minutes, Retail Sales, and University of Michigan Sentiment.  Later this week, earning season will officially begin.  Please refer to the attached earnings and economic calendars for times and details.