Mixed Payrolls Report Reveals Steady Hiring, Muted Inflation

 

Payrolls additions in the US continued at a steady pace during September (+136,000), as the unemployment rate declined to a 50-year low of 3.5%. While the +136k figure missed expectations of +145k, the prior two months levels were revised 45k higher. A weak spot in the report by the Labor Department was observed in the average hourly earnings, which remained flat on a month-over-month basis and climbed 2.9% (+3.2% expected) from September 2018. Financial markets were largely unchanged following the mixed release.

 

 

Today’s labor data helped stop the bleeding from yesterday’s concerning services-sector report. The ISM nonmanufacturing index declined to its lowest level in the past three years with a 52.6 reading for September. While the figure remains above the 50.0 threshold associated with expansion in activity, the slowing pace adds to the bevy of recent economic data that points towards a weakening of the US economy. Treasurys rallied following the print – yields/swap rates finished 2-8bps lower on Thursday, with the 10-year UST yield near 1.535%.

 

 

The probability of a rate cut at October’s meeting (10/30) climbed to 85%, as per Fed Funds futures — 10% higher than Wednesday’s indication. Speaking to the public last night, Fed Vice Chair Richard Clarida remained neutral in his expectations for the next meeting, commenting that “we are not on a preset course”, but “will act as appropriate” to ensure the expansion of the US economy continues on its record pace. Next week’s highlights include speeches from several Fed members (Powell, Evans, Kashkari), the release of the minutes from last month’s FOMC meeting (Wednesday), and consumer inflation data on Thursday.