A blockbuster US jobs report deflates recession worries — and rate cut expectations
Much better than expected job growth in September with a lower unemployment rate, to boot.
The September non-farm payrolls report showed job growth of 254,000 for the month, while economists had expected employment to rise by 150,000. That’s the most jobs added relative to expectations since January.
More good news: the unemployment rate, which was anticipated to hold steady, fell just a bit to 4.1%.
There may be some flies deep in the ointment, but when that many more jobs get added versus expectations and the unemployment rate goes down, traders aren’t going to work hard to find any.
“NFP Friday overwhelms all other employment indicators,” writes Neil Dutta, head of US economics at Renaissance Macro Research. “Thus, the simplest reaction to this morning’s employment report is that labor market conditions are so strong that it makes a 50-basis point rate cut unlikely at any remaining meeting this year and reinforce the Fed’s 25-basis point guidance between now and year-end.”
This was “undeniably good news” for the stock market, Dutta added, as it suggests the Federal Reserve is providing interest rate relief to an economy that is on a more stable footing.
S&P 500 futures jumped in the minutes following the report, extending gains to 0.8%. Russell 2000 futures are soaring, up as much as 1.7%, and the advance for the tech-heavy Nasdaq 100 futures is also in excess of 1%.
Treasury yields also spiked, with the 2-year yield up as much as 17 basis points. That’s its biggest intraday rise since April 10, when the US got its third straight hot CPI inflation report. The odds of a 50-basis point rate cut from the Federal Reserve at its November meeting went from about 30% before this release to below 10%, according to CME’s FedWatch tool.
The US Dollar Spot Index is working on its fifth straight day of gains, its longest winning streak since mid-April, buoyed in recent days by recent geopolitical angst and now these encouraging jobs figures.
Though it’s just one report, these data will be a salve for any worries about the abruptness of the loss of momentum in the US jobs market, where private sector employment growth had been stagnating to the point where we really couldn’t be sure if the economy even added jobs in recent months. The report showed that those more sluggish figures from July and August also enjoyed positive revisions. This is the latest — and most high-profile — example of the recent trend of US data coming in better than anticipated.
I’ve called this the “keep it there” economy, based on monetary officials’ stated desire to maintain the combination of low unemployment, much lower inflation than had prevailed for the prior three years, and solid growth. Between these blockbuster job numbers and recent revisions to US gross domestic income as well as the savings rate, what we’re learning is that “there” is an even better place than previously thought.
