Thierry Hasse: Strong jobs report underscores strength of economy
Last month the Federal Reserve clearly signaled its intention to support the labor market in the event it shows signs of weakness. Well, there was nothing weak in the Bureau of Labor Statistics jobs report released on Friday, Oct. 4. Every aspect of this key economic report was much stronger than even the most optimistic projections. The economy is unequivocally very healthy, with solid job creation.
Chief Investment Officer Thierry Hasse
Strong job market growth
Since the Federal Reserve’s jumbo 50 basis point rate cut last month, investors had been awaiting the release of the U.S. employment report for September. Total non-farm payrolls increased by 254,000, well above the most optimistic estimate, and the unemployment rate dipped to 4.1%. The strength in job creation led to strong growth in average hourly earnings, which were up 4% from a year ago. (Source: Bureau of Labor Statistics.) These figures should quiet discussions about an imminent recession. If anything, the economy is showing signs of accelerating into the all-important holiday season.
Treasury yields surge
Fixed income markets reacted swiftly and forcefully. Within minutes of releasing the nonfarm payroll numbers, Treasury yields moved sharply higher. The 2-year notes yield closed the week at 3.92%, and the 10-year notes yield finished at 3.97%. Interestingly enough, those levels are approximately 30 basis points higher than before the Fed’s September meeting. This is another example of how the Treasury market often anticipates too much interest rate reduction and is forced, by strong economic numbers, to correct itself.
Equities celebrate labor gains
While bond investors were looking at sharp losses on the day, equity markets were simply treating good news on the labor front as good news for corporate profits going forward. The Dow Jones Index closed the week with a new record high at 42,353, while the S&P 500 Index was within a fraction of a new record. Good times are here for investors despite geopolitical tensions.
Inflation data awaited
Market participants now await the latest inflation data, which will be released on Thursday. Economists expect a mild increase of 0.1% in the Consumer Price Index (Source: Briefing.com). However, any negative surprise showing a resurgence of inflationary pressures will bring a chorus of criticism of the Federal Reserve’s large interest rate cut.
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