Morning Commentary: U.S. Job Growth Remains Resilient

Foreign Exchange - Morning Commentary
U.S. Job Growth Remains Resilient
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Job growth has clearly slowed from earlier this year and last year but, overall, the U.S. job market remains surprisingly resilient. Last year job growth averaged 223,000 jobs a month and, so far this year, we are averaging 167,000 jobs a month. Continuously lower global trade volumes due to the U.S. – China trade war have put our manufacturing sector in contractionary territory.  Moreover, the GM strike was also supposed to negatively impact the October jobs report.

Surprisingly, October job growth of 128,000 easily beat expectations even with a decline of 42,000 in the motor vehicle and parts industry and another decline in manufacturing of 36,000. Adding to the resiliency factor was the strong upward revisions to the two previous months. In total it was a very strong report but market reaction has been quite muted.

September job growth was revised from 136,000 to 180,000 and August was revised from 168,000 to 219,000…a net gain of 95,000 more jobs created. The UR ticked higher from 3.5% to 3.6% but is still near the lowest levels in 50 years. The labor force participation rate improved from 63.2% to 63.3% and average hourly earnings came in near expectations with a 0.2% month over month gain and a 3.0% year over year gain. Total employment measured by the household survey jumped to 158,500,000 which is a new record high. The UR rate for African-Americans ticked lower to 5.4%, which is also a new record.

So this report clearly surprised the market and based on all the headlines and revisions, a market observer like myself would have thought we would have seen a sharper spike higher in U.S. interest rates and a much stronger U.S. dollar. U.S. short and medium term interest rates are fractionally higher and the U.S. dollar is slightly stronger but more mixed overall. Why? Investors remain cautious about a breakthrough in the trade talks and most importantly the Fed said on Wednesday that until inflation rears its head, interest rates will remain anchored where they are at. The bond market is a better gauge of future growth expectations than the stock market and they remain cynical about future growth expectations.
  • Yesterday, we reported a very weak Chinese manufacturing PMI report for October. Today, in a slightly different manufacturing report that focuses on smaller and medium sized companies, the Caixin manufacturing report for October beat expectations and rose for the fourth consecutive month. Of particular note, new orders increased by the quickest pace in six years. The Chinese economy has slowed due to the trade war but has also remained resilient and that is part of the reason why the Chinese have remained steadfast in what they will concede in the trade talks.
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