The Market Today
October Jobs Data Show Solid Demand but Lingering Supply Issue
by Craig Dismuke, Dudley Carter
Better Jobs Recovery with Exception of Education Sector: The economy recovered 531k nonfarm payrolls in October, beating expectations for a 450k recovery despite another decline in public education jobs. Private payrolls gained 604k while government jobs declined 73k. The 73k decline was primarily driven by another loss of local and state educators, down 65k in October and still down 574k (5.4%) from prior to the pandemic. There was broad-based improvement in recovery by sector. The leisure sector which recovered another 164k jobs, including 119k restaurant jobs. Food and drinking services jobs remain 784k (6.4%) below their pre-pandemic level.
There appears to be a larger-than-normal lag in reporting payrolls currently. August’s total was initially reported as +235k but was revised up to 366k in the September release. That tally has now been revised up to 483k. September’s 194k gain was also revised up in today’s release, up from 194k to 312k. Despite the positive revisions, October’s 531k gain was the best pace of recovery in three months.
Unemployment Rate Drops Even Lower as Labor Supply Remains Weak: In the household report, the unemployment rate fell from 4.8% to 4.6% as 359k more people reported as employed, 255k fewer people reported as unemployed, and participation in the labor force was unchanged at 61.6%. Participation was particularly improved for people in the 20-44 age cohorts but declined for those 45 and over. According to the BLS, “3.8 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic–that is, they did not work at all or worked fewer hours at some point in the 4 weeks preceding the survey due to the pandemic. This measure is down from 5.0 million in September.” In addition, the report noted, “Among those not in the labor force in October, 1.3 million persons were prevented from looking for work due to the pandemic. This measure is down from 1.6 million in September.” The discrepancy in the recent recovery by gender continued in October. The number of women unemployed or not in the labor force rose 55k while the number of men in the same categories fell 283k.
Earnings Growth Continue Higher: Average hourly earnings continued to run at a brisk pace, up another 0.4% MoM bringing the year-over-year rate up to 4.9%. Giving evidence to the continued difficulty in bringing workers back into lower wage sectors of the labor market, the leisure sector saw earnings increase 1.0% MoM, now up 11.2% YoY.
House Scheduled to Vote on BBB and BIF: The House will reportedly vote on the Build Back Better plan and the Bipartisan Infrastructure Bill today. If passed, the infrastructure plan would go to the President’s desk for signature while the BBB continues to face pushback from Democrats in the Senate.
S&P 500 Sets Another Record As Rates Fall Sharply Following Bank of England Surprise: The Dow slipped 0.1% Thursday while the S&P 500 gained 0.4% and the Nasdaq jumped 0.8%, both closing near session peaks and registering their sixth consecutive record high. The real action and focus, however, was in the rates market. The Treasury curve had steepened higher Wednesday after the Fed announced its tapering plans but Powell stuck with a calm and patient tone, albeit against a backdrop of officials hedging their expectations that stronger inflation will be transitory. With the Fed lacking an air of urgency to hike rates despite more aggressive market pricing in recent weeks, the 2-year yield had risen 1.6 bps while the 10-year yield jumped 5.5 bps. Treasury yields had reversed overnight into Thursday and were lower and flatter before the Bank of England’s dovish surprise. The central bank disappointed expectations for a 0.15% hike on Thursday, keeping rates unchanged despite some hawkish commentary from officials in recent weeks. The U.K. Gilts curve lunged lower and steeper. The 2-year yield slumped 21.1 bps to 0.46% and the 10-year yield sank 13.7 bps to 0.93%. Global yields also added to declines after the Bank of England decision. By the close, Treasury yields were lower but flatter. The 2-year Treasury yield ended 4.1 bps lower at 0.42% while the 5-year yield shed 7.8 bps to 1.11%. Fed funds futures prices implied an average fed funds rate for December 2022 of 0.51%, down from 0.61% on Monday. The 10-year yield slipped 7.7 bps to 1.53%.
Prior to this morning’s jobs report, and against a backdrop of global trading, U.S. equity futures edged into positive territory to new all-time highs while Treasury yields modestly pared Thursday’s declines. Stocks dipped across Asia but European indexes were firmer at 6:45 a.m. CT. European yields were modestly lower after industrial production in France and Germany and retail sales across the Eurozone contracted unexpectedly in September. Despite lower yields across the Atlantic, Treasury yields were little changed heading into the October jobs data, having trimmed slightly larger overnight increases. The 2-year yield was 0.4 bps higher while the 10-year yield was 0.2 bps higher. At 7:45 a.m. after the stronger-than-expected payroll report, the 2-year yield was 1.6 bps higher at 0.44% while the 10-year yield remained up just 0.2 bps at 1.53%.
The President’s push for corporations to mandate vaccines for their employees took another step forward on Thursday. OSHA announced a new rule that will require businesses with at least 100 workers to test unvaccinated workers, who must also wear a mask, on at least a weekly basis. Willfully violating the rule could lead a business to face a fine of up to $136,532. The rule is expected to meet legal challenges from several states and other organizations.