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As expected, the October payrolls data came in soft. But, showing just 12k jobs added, this was much weaker than the 100k reading that economist consensus had been looking for.
Even so, market reaction to this latest jobs report has remained relatively muted. Given hurricane and strike-related disruptions last month, alongside data collection issues, traders appear to be treating today’s labour market readings with a degree of scepticism. Granted, the dollar initially sold off, but only by around half a percent.
More pertinently, there has not been a repeat of the market panic sparked by July’s soft payrolls reading, which prompted a rapid acceleration in Fed easing expectations.
Looking first at the establishment report, headline payrolls showed just 12k jobs added in October, down from 223k the month prior. This September print was itself downgraded, from an initial 253k, with two-month payroll revisions subtracting -112k from the August and September payrolls prints in total. In terms of notable additions, health care gained 52k jobs in October, while government employment rose by 40k last month. Offsetting this, temporary help services declined by -49k, while manufacturing payrolls dropped by -46k. While the latter had been expected to decline, particularly due to strike action, the fall in manufacturing employment was still larger than the -30k contraction that markets had anticipated.
That said, we think there are several further reasons to discount the low October payrolls print seen in the establishment survey too.
As noted in today’s jobs report “It is likely that payroll employment estimates in some industries were affected by the hurricanes; however, it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates because the establishment survey is not designed to isolate effects from extreme weather events.” Moreover, we would also observe that the establishment survey collection rate for October was well below average. This collection period, which can range from 10-16 days, lasted just 10 days in October, and was completed several days before the end of the month.
The household survey, in contrast, saw “no discernible effect on the national unemployment rate”. This rose marginally on an unrounded basis, climbing from 4.05% in September to 4.15% last month, a small enough climb to see the headline figure remain unchanged at 4.1%. Furthermore, average hourly earnings rose 0.4% MoM in October, above expectations for a 0.3% increase, seeing the annual growth rate stabilise at 4.0% YoY.
Together, these are numbers that offer a more hawkish steer than headline payrolls, helping to offset concerns that could have been raised by the establishment report.
Given the uncertainties around October’s jobs data, it is perhaps unsurprising to see the market reaction remaining muted. OIS pricing now indicates an 85% chance that the FOMC will cut rates by 25bps next week, a marginal uptick on the 75% chance that was implied prior to today’s jobs release.
A similar story is true for FX markets as well. After initially sinking 0.4%, the DXY index is now trading just 0.1% weaker than pre-announcement levels.
Author:
Nick Rees, Senior FX Market Analyst