Disappointing September Payrolls Report Shows US Economy May Be Feeling Effects of Global Slowdown

After an initial dive, US stocks rallied while Treasury yields and swap rates traded lower across the curve after an extremely disappointing September payrolls report.  If economists are looking for a silver lining in the report, it’s going to be hard to come by.  The headline number came in at 142,000, well off the 201,000 jobs economists were forecasting.  Additionally, there was no wage growth, a falling participation rate, and a two-month net revision of -59,000 jobs from the July and August reports.  The unemployment rate held steady at 5.1%, but the underlying data suggests the US economy is starting to feel the effects of the global slowdown.  This is the last payrolls report before the October Fed meeting.

The Fed Funds futures market implies that traders think the probability of a rate hike in either October or December has diminished significantly following the disappointing payrolls report, but several members of the FOMC made comments stating otherwise.  St. Louis Fed President Bullard said the weak employment report did not change his call for a rate hike before year end.  Bullard believes the Fed has met its mandate of maximum employment and is now closer to the 2% annual inflation target, so therefore the timing is appropriate.  Perhaps more significantly, Boston Fed’s Rosengren, a known dove and voter in 2016, told Fox Business News that it would be appropriate for the Fed to begin hiking this year, if the data is steady.  Obviously today’s payrolls report wouldn’t be defined as steady, but he likely knew the results when he made his comments before the report was released to the public.

Have a great weekend.