The markets will be soothed by September non-farm payrolls that rose 136,000 while the unemployment rate sank to 3.5%, its lowest level since December 1969.
“Amid bad-news-vulnerable markets and the weak ISM surveys, this report should quell expectations of an imminent recession,” Mickey Levy, Berenberg Capital Markets' chief economist for the U.S. Americas and Asia, and U.S. Economist Roiana Reid write in a note. “The only disappointment was flat average hourly earnings in September — but real wages (inflation adjusted) continue to rise at a healthy pace.”
While the pace of growth has slowed since last year, they note, it remains above the 100,000 level “consistent with sustained moderate growth along standard estimates of potential growth, and is sufficient to keep the unemployment rate below 4%.”
“Job creation was solid in September and the impression is reinforced by upward revisions to July and August,” said Charles Seville, co-head of Americas Sovereigns at Fitch Ratings. “Also on the positive side, manufacturing hours worked held pretty steady.”
The average workweek held at 34.4 hours, while earnings were flat in the month, but up 2.9% year-over-year, down from a 3.2% rise the month before.
These numbers “are comforting signs that economic momentum remains solid even in an environment of greater uncertainty,” said National Association of Realtors Chief Economist Lawrence Yun. “But before getting too excited, we should be aware that jobs are not cut at the first sign of uncertainty. That is why employment conditions are often a lagging indicator in assessing the direction of the economy.”
In his opinion, “The Fed will need to make another cut to interest rates very soon.”
With the “seemingly impossible” 3.5% unemployment rate, upward revisions to July and August job gains, and year-over-year wage growth “at a respectable 2.9%," Bryce Doty, senior portfolio manager Sit Fixed Income Advisors, LLC, said, “In a sane world, the Fed would be raising rates on this data, but alas, they are still likely to cut in October.”
Of course, the U.S. economy is not the impetus. Rate cuts, he said, won’t aid “weakness in the areas of manufacturing negatively impacted by tariffs,” while “the much larger remainder of the economy is doing well.”
“But,” he said, “the rest of the world has been shaken by trade issues and Europe and Japan find themselves with little room or will to support their economies with meaningful fiscal and monetary policy changes.”
In addition, the Fed faces a “liquidity problem that just won’t go away.” If the issue is resolved, “we would predict no more Fed cuts this year,” Doty said. “Without a permanent solution, we expect two more rate cuts this year.”
Morgan Stanley’s research team agrees a 25 basis point cut is coming this month.
Despite recent data having been “soft,” Tony Bedikian, managing director and head of global markets at Citizens Bank, said, “this is a solid report that shows the economic fundamentals of the U.S. economy are still strong.”
With global trade uncertainty still an issue, “the Fed has been willing to serve as a backstop so far and the U.S. consumer has been ignoring a lot of the noise coming out of Washington. We don’t see a recession on the horizon, but I think we are entering a period where we have to be careful that we don’t talk ourselves into one.”
The 136,000 rise fell short of the 145,000 expected by economists.
"So are we in a mid-cycle slowdown or at the start of a more serious downturn?" asks Scott Anderson, chief economist at Bank of the West Economics. "In my view, there are clear signs of a cooling labor market in September’s jobs numbers, but no signs yet of the panic and capitulation one would see at the onset of a recession. With that said it is also too early to sound the all clear. We continue to forecast even slower GDP and employment growth ahead and remain on recession watch for 2020. "
Trade data
Also released Friday, he U.S. trade deficit climbed to $54.9 billion in August from $54.0 billion in July, the Commerce Department reported.
Economists polled by IFR Markets expected a $54.5 billion shortfall.
The trade deficit with China declined to $31.8 billion, on an unadjusted basis, as imports fell 0.8%.
