KEY DATA: Jobs: 128,000, Private, 131,000, Revisions: +95,000, Vehicles: -41,600; Unemployment Rate: 4.6% (up from 4.5%); Wages: +0.2%/ ISM (Manufacturing): +0.5 point; Orders: +1.8 points/ Construction: +0.5%
IN A NUTSHELL: “Remember all those stories about the job growth fading, well never mind.”
WHAT IT MEANS: So much for a slowing job market. Yes, the total number of net new hires in October was nothing spectacular but that was simply because GM was on strike and those workers were not considered to be employed. With the strike settled, the November report will reflect their return to work. Excluding the motor vehicle sector, hiring was good with solid gains posted in health care, construction, wholesale trade, financial activities, retail and especially restaurants. As for the government, cut backs in census workers led to a sharp decline in federal payrolls. That is just an unwinding of the increases we saw previously. Those ups and downs will be repeated this spring when we actually take the census. As for wages, they rose decently and the year-over-year decline was reversed slightly. Finally, the modest rise in the unemployment rate should not be viewed as a concern. The labor force grew solidly and the participation edged up and those are signs of a vibrant labor market.
Manufacturing activity continues to moderate, but the decline eased in October. The Institute for Supply Management’s Index rose, though it remained in negative territory. Most of the components posted gains, though production did fade further. All of the components, except for export orders, are still below 50. In other words, the sector is slowing at a slower pace.
Construction activity picked up in September and the increases were broad based. Residential, nonresidential, private and public all posted gains. That said, private activity remains down over the year and it is largely the public sector that is driving construction.MARKETS AND FED POLICY IMPLICATIONS: After several months of reporting decelerating job gains, the Bureau of Labor Statistics discovered a ton of new jobs they missed in August and September and the additional positions changed the tenor of job gains. When you consider the negative impact that the GM strike had on the October numbers, it is clear that the labor market is stronger than we perceived going into today’s report. And that raises even more questions about why the FOMC cut rates again this week. Let’s face it, the Fed is largely out of bullets. Yes, they have six more quarter-point moves before they get to zero, but the reality is that once the one percent level is hit, any additional cuts could reduce investment rather than increase it. Households and businesses will likely recognize that the only reason the Fed would be going so low is that the economy is in trouble and really, who borrows money when they are worried about a faltering economy? Lowering rates to feed the market beast while emptying the arsenal needed to fight a recession, especially when cutting rates is not a necessity, is not good monetary policy. What will the Fed do when we really need rate cuts, such as when the economy actually falters? Got me. Maybe that should be the question that is asked of Fed Chair Powell the next time he talks. So, where will the Fed go from here? My guess is that it is on hold for quite some time. This report makes it awfully hard for the FOMC to cut rates again in December.